Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — HOSPITALS

Broadmoor Hospital (Richard Upcher)

Mr. van Straubenzee: asked the Minister of Health whether he will now make a statement on the escape of Richard Upcher from Broadmoor Hospital on 21st February.

The Minister of Health (Mr. Kenneth Robinson): I would refer the hon. Member to what my hon. Friend said in the Adjournment debate on Broadmoor Hospital on 1st April.

Mr. van Straubenzee: Is the right hon. Gentleman aware how appreciative I am of the personal consideration that he has given and the trouble that he has taken in regard to this case and Broadmoor generally? Does he recall that there have been criticisms that the six sirens are apparently not yet in operation? Can he say when he expects that that will be put right?

Mr. Robinson: I am grateful to the hon. Gentleman for his observation at the beginning of his supplementary question. It is true that none of the six additional sirens is yet operational, but four of them will be very shortly. As to the initial testing of the sirens, regular testing will be carried out when they are established. Questions about the actual execution of the work are for my right hon. Friend the Minister of Public Building and Works.

Registration Officers

Mr. Ogden: asked the Minister of Health if he has yet been able to meet representatives of the National Associa-

tion of Registration Officers to discuss ways of raising the status and salaries of the service; and what are his proposals.

Mr. Bessell: asked the Minister of Health if he will now make a statement on the status and salary conditions of registration officers, following the representation made to his predecessor in March, 1964.

Mr. K. Robinson: I have myself had a useful talk with representatives of the officers and the hon. Member for Leeds, North-West (Sir D. Kaberry) and am considering what can best be done to meet their difficulties.

Mr. Ogden: While thanking my right hon. Friend for that reply, may I ask him whether he can say when he will be able to make a further statement in view of the length of time it has taken for the matter to come to his notice and be further considered?

Mr. Robinson: I cannot give my hon. Friend a definite reply. The difficulty is that neither I nor the Registrar-General has any locus in the established negotiating machinery. Any special action would require the co-operation of the parties to the machinery.

Sir W. Anstruther-Gray: Is there any liaison between the right hon. Gentleman and the Secretary of State for Scotland in the matter of the conditions and salary of registration officers?

Mr. Robinson: Yes, indeed, Sir.

Birmingham (Boards and Management Committees)

Mr. Ioan L. Evans: asked the Minister of Health if he will ensure that every section of the community is given fair and adequate representation on the Birmingham regional hospital boards and hospital management committees in the Birmingham area.

Mr. K. Robinson: So far as my appointments to the regional hospital board are concerned I would refer my hon. Friend to the reply given to my hon. Friend the Member for Oldham, West (Mr. Hale) on 16th November. The regional hospital board is responsible for appointments to hospital management committees but I have no doubt that its object is the same.

Mr. Evans: While thanking my right hon. Friend for the reply, may I ask him whether he realises that in Birmingham and the West Midlands there has been considerable disquiet about the partisan manner in which the previous Government made appointments to the board? While I am not asking him to adopt a partisan approach, may I ask whether he will ensure that in future the appointments to the committees will cover a broad cross-section?

Mr. Robinson: I am aware that a certain amount of criticism has been voiced in the area. I am sure that my hon. Friend will know that political parties are not consulted about appointments to boards or committees, but I consult the Trades Union Congress about the appointments to boards, and the regional hospital boards in their turn consult local trades councils before making appointments to hospital management committees

Mr. Wood: Is it not the right hon. Gentleman's general view that party political considerations should not affect his choice?

Mr. Robinson: Yes, Sir. My general view is the same as that of my predecessor, that appointment to membership of a regional hospital board is made primarily for the individual contribution which members can make to the efficient running of the hospital service.

Mr. Evans: Does my right hon. Friend realise that, while we on this side would agree that party considerations should not come into the matter, the cause of the complaints in the past has been that they appear to have done so?

Barnstaple Hospital

Mr. Peter Mills: asked the Minister of Health in what way provision of toilets, operating rooms and other accommodation at Barnstaple Hospital falls short of the standards laid down by his Department.

The Parliamentary Secretary to the Ministry of Health (Mr. Charles Loughlin): It is old fashioned and insufficient. The South Western Regional Hospital Board hopes to start work on a new operating theatre and out-patient clinics later this year.

Mr. Mills: Does not this show the very real need to do something more at 
once, and will the hon. Gentleman bear in mind that I am still receiving letters complaining about the delays in getting operations in the hospital? Will he also take account of the extraordinary fact that a crematorium is being built in North Devon before a new general hospital?

Mr. Loughlin: I do not think that that is by a regional hospital board. I answered the Question as it was tabled. We appreciate that it is a very old hospital. I believe that its date is 1825. The hospital board itself is responsible for planning to meet the needs in the area which it covers. It would be to some degree presumptuous if my right hon. Friend interfered with regional hospital boards in this way. We appreciate that this is an old-fashioned hospital. The board is getting on with the job of the new operating theatre and clinics this year, and we hope that this will bring about an improvement.

Mr. Thorpe: While I am in no way blaming the present Administration for the state which they have inherited, may I ask the hon. Gentleman whether he would not agree that when one has a hospital with nearly 1,000 people on the waiting list, with no day room, no utility rooms and no central sterilisation rooms, with wards already over-choked with beds, and with only 12 lavatories for all the patients and staff to share, to build one new operating theatre is merely a patch-up and a very bad patch-up at that? Does he not feel that the need for a new hospital is of the greatest urgency?

Mr. Loughlin: If I had wanted to go into the background of this I should have said very much what the hon. Member for Devon, North (Mr. Thorpe) has said. We appreciate that until we get a new hospital in the area the facilities will be inadequate. Improvements have been made. We hope that with the new hospital we can solve the problems. We are very mindful of the difficulties.

Hospitals (Heating Equipment)

Mr. McGuire: asked the Minister of Health if he will give instructions to the Manchester Regional Hospital Board that they should discuss with the National Coal Board North-West Divisional Marketing Department the relevant details of


new boiler plant equipment which is to be installed in any of the hospitals under the control of the Board, when they are requested to do so by the Marketing Department.

Mr. K. Robinson: I have asked all hospital boards to consult the National Coal Board in the early stages of planning before deciding what forms of heating should be installed in hospitals.

Mentally-Defective Children

Mr. Ian Gilmour: asked the Minister of Health what steps he has taken to improve the provision of hospital beds for turbulent mentally-defective children.

Mr. K. Robinson: I have recently asked hospital authorities to review their building programme and I have drawn their attention to the need to give the psychiatric services not only a due share of the resources available but an early share. The review will cover the needs of these children for hospital accommodation.

Mr. Gilmour: While appreciating that reply, may I ask whether the Minister does not agree that it is anomalous that a turbulent adult immediately has a bed found for him but a turbulent child is normally placed on a virtually stationary waiting list?

Mr. Robinson: I would not put the problem in quite such stark terms as that. It is true that there are about 2,200 mentally subnormal children awaiting admission to hospital at the moment, but at the end of last year there were about 8,000 beds occupied by such children. Additional beds are in the course of being provided and further provision is being planned.

Lord Balniel: Does not the Minister recollect his undertaking that he would ask groups of regional hospital boards to work together in order to improve inpatient accommodation for subnormal children? Has any progress been made in this grouping of regional hospital boards?

Mr. Robinson: I do not recall giving an assurance that groups of regional hospital boards could work together. I said that regional boards and local health authorities were being asked to work together for this purpose.

Mr. Hazell: Does not my right hon. Friend agree that every regional board has waiting lists of children seeking admission to such institutions?

Mr. Robinson: I think that that is probably true.

Old Persons

Mr. Cordle: asked the Minister of Health what steps he is taking to provide additional accommodation in hospitals for geriatric cases and in nursing homes for elderly and infirm persons, in view of the anticipated progressive increase in the percentage of elderly persons in the community during the next decade.

Mr. Jackson: asked the Minister of Health what steps he plans to take to provide extra accommodation in hospitals for geriatric cases, in view of the expected increase in the percentage of old persons in the national population during the next 10 years.

Mr. K. Robinson: I have asked regional hospital boards in reviewing their programmes to give due priority to the expansion of hospital geriatric services. I propose shortly to ask local authorities to review their health and welfare plans, including the adequacy of residential accommodation to be provided for the elderly.

Mr. Cordle: In the Minister aware that there is a serious lack of suitable accommodation in hospitals for special attention to and comfort of the elderly? The housing programme is geared to special housing for elderly people, but many more will require care and treatment in hospitals or nursing homes specialising in their needs. I wonder whether special arrangements are made for dealing with advanced programmes for the geriatrics in general.

Mr. Robinson: It is partly because of this general problem that I asked hospital boards to give special consideration to the needs of geriatric services. I do not think that there is an overall shortage to the extent suggested by the hon. Member in his supplementary question. We have told hospital authorities that where the complementary services in the community are of a high standard and well developed, adequate provision would


normally be about 10 hospital beds for every 1,000 persons aged over 65.

Mr. Wood: This is not only a grave but a growing problem. Would the Minister consult the Chancellor of the Duchy of Lancaster in the current review which I understand he is undertaking to see whether the whole needs of the elderly and the ageing in the future can be included in that review?

Mr. Robinson: The broadest aspect of this question will be included in that review, but it is just because of the considerations which the right hon. Gentleman has put forward that I have asked for particular attention to be given in the review and for joint planning to be done in respect of the elderly between local authorities and hospital authorities.

Mr. Turton: Will the Minister bear in mind the importance of seeing that the accommodation which is made available is near the old people's homes?

Mr. Robinson: I am not quite sure what sort of accommodation the right hon. Gentleman means.

Mr. Turton: Hospital beds.

Mr. Robinson: Hospital beds, I am afraid, will have to be provided in the hospitals which exist.

Walkergate Hospital, Newcastle-upon-Tyne

Mr. Rhodes: asked the Minister of Health what is the average waiting time for admission to the various departments of Walkergate Hospital, Newcastle-upon-Tyne, based on the average for the last two years.

Mr. Loughlin: Three months for ophthalmology; 10 weeks for ear, nose and throat surgery; three weeks for dermatology; less than one week for all other departments. Urgent cases are admitted without delay.

Mr. Rhodes: Is my hon. Friend aware that, according to the British Medical Association, in the Newcastle-upon-Tyne Regional Hospital Board area, based on the Walkergate Hospital, there is an immediate and urgent shortage of at least 10 per cent. in the number of beds? Will he agree that he and his right hon. Friends

inherited from the previous Government a grave shortage of hospital services in the Tyneside area? May the House assume that the years of callous neglect are now over?

Mr. Loughlin: Well—[Laughter.]—I am delighted to accept the sentiments expressed by my hon. Friend in the first part of his supplementary question and in the second part with which he concluded his remarks.

Mr. R. W. Elliott: Is the hon. Gentleman aware that a very great deal has been done in Newcastle in the past 13 years in the development of its various hospitals? Would he confirm that which he suggested in his Answer, namely, that, following some disturbing reports in Newcastle-upon-Tyne in recent days, emergency cases are received within the regional hospital board area without any delay?

Mr. Loughlin: Urgent cases are admitted without delay within the area. Let me make it perfectly clear—I think that the laughter of hon. Members opposite slightly changed my reply to the supplementary question of my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Rhodes)—that anything that I may have said did not in any way cast a reflection on the regional hospital board. There have been some difficulties. A consultant in ophthalmology died, I think, in July of last year, but there has been a new appointment and we are hoping that there will be an easing of the position. As I say, there are difficulties. But there are difficulties in many regions. I hope that the House will bear with us for a bit, anyway.

Sir Knox Cunningham: Does the hon. Gentleman mean to say that if anyone laughs at him he changes his Parliamentary reply?

Bromley Hospital

Mr. Hunt: asked the Minister of Health why the redevelopment plans for Bromley Hospital have been deferred; when he now anticipates this work will commence; and whether he will make a statement.

Mr. Loughlin: This decision was made by the South East Metropolitan Regional


Hospital Board in re-assessing the priorities of its building programme. I am not yet able to say when the work will start.

Mr. Hunt: Is the hon. Gentleman aware that he cannot shrug off his responsiblities in that way? I recently visited Bromley Hospital and found a deep sense of frustration and despair at this delay among the surgeons and senior staff whom I saw there? Would not the hon. Gentleman agree that this cut is typical of the many cuts now being imposed in various parts of the country? Is not this a blatant betrayal of the Labour Party's election promises?

Mr. Loughlin: This really is nonsense, because my right hon. Friend has provided an extra £5 million for the hospital building programme. The responsibility for deciding priorities must rest with the regional hospital board. It is planned to spend about £100,000 on improvements in the Bromley area. We invest responsibility with the board, and we do not propose to depart from that policy.

Lord Balniel: My hon. Friend the Member for Bromley (Mr. Hunt) is absolutely correct. Does not the hon. Gentleman realise that the postponement since October, 1964, of 20 hospital building projects, each costing over £100,000, which were due to be started in 1965–66 has caused a very widespread sense of frustration? Can the hon. Gentleman say when the review of the hospital building programme, which is apparently delaying the building programme, is likely to be published?

Mr. Loughlin: There is a later Question on the latter part of the hon. Gentleman's supplementary question, but I can assure him that there would have been far greater cutting if we had not provided an extra £5 million.

Mr. Speaker: Mr. Jennings.

Mr. Hunt: In view of the unsatisfactory nature of the reply, I beg to give notice—

Mr. Speaker: Order. I called the hon. Member for Burton (Mr. Jennings) before I was given notice.

Mr. Jennings: Does the Ministry ever veto a decision of the regional hospital boards? Does the Ministry ever reverse

a decision of cancellation or postponement of hospital building, as in the ease of Burton-on-Trent, for example?

Mr. Loughlin: We provide the money, of course. [Interruption.] If the hon. Gentleman is going to get stupid about it, the taxpayer provides the money. Of course, the Government—

Mr. Jennings: On a point of order. When the Parliamentary Secretary refers to an hon. Gentleman getting stupid, I hope that he makes clear which hon. Gentleman he means.

Mr. Speaker: I do not think that we will spend time on it. Let us get the Question answered.

Mr. Loughlin: I want to make it perfectly clear that I was not referring to the hon. Member for Burton (Mr. Jennings). The Government must have some responsibility. The regional hospital boards determine the priorities within the regional hospital board areas.

Mr. Jennings: The hon. Gentleman has not answered the question. Does the Ministry ever veto a decision?

Preventive Medicine

Mrs. Joyce Butler: asked the Minister of Health if he will earmark for preventive medicine a percentage of the block grant made to regional hospital boards.

Mr. K. Robinson: I think it is preferable for the responsible hospital authorities to settle their own priorities We do, of course, continue to give guidance.

Mrs. Butler: Will my right hon. Friend look at this suggestion again in view of the fact that some areas are falling behind in the provision of cervical cancer screening services and other preventive procedures? Would not this be a helpful way of bringing these areas into line with more progressive hospital boards?

Mr. Robinson: We are doing our best to encourage the development of this service, but I think that it would be a departure, and a very serious departure, from our normal practice if we were to give earmarked grants to hospital authorities for particular purposes. In general, I think that the campaign to develop cervical screening facilities and provide a


routine service is making very good progress. If my hon. Friend has any particular region in mind where progress is not good, no doubt she will put down a Question to me.

Mr. Pavitt: Will my right hon. Friend give attention to the possibility of giving a lead to all three sectors of the Health Service in relation to the prevention of cervical cancer by exfoliative cytology? Is he aware that there are at present a number of initiatives being taken both by local health authorities and hospitals which certainly do not always coincide?

Mr. Robinson: I am very anxious that we should have proper co-ordination here, but, undoubtedly, the first thing to do in order to get the service established is to see that we have the trained technicians and pathologists in cytology, and we are pressing ahead with that.

Mr. Alan Williams: Is my right hon. Friend aware that, even if he has the technicians, much of their time will be wasted unless there is a streamlining of the processing of the slides which are used in these test centres? Might not this be a useful focal point for some research by his Department?

Mr. Robinson: A great deal of research is going on into various ways by which a more efficient analysis of slides can be undertaken, but we are not yet satisfied that any of the short cuts, so to speak, are sufficiently reliable to deter us from going ahead with the training of technicians.

Geriatric Day Hospitals

Mr. Ridsdale: asked the Minister of Health what plans he has for further day hospitals, similar to that at Cambridge, for dealing with geriatric cases.

Mr. Loughlin: Fifty-six geriatric day hospitals or units are now in existence. The provision in existing programmes for additional hospitals and units will be reviewed in the course of the current review of the hospital building programme.

Mr. Ridsdale: Is the hon. Gentleman aware that we regard the Government as being very slow in giving encouragement to this idea? Is it not an economical way of using our scarce capital resources in the best fashion, by encouraging people

to stay in their own homes as long as possible, relieving the burden on the general hospital service for acute cases?

Mr. Loughlin: I agree that we have been slothful, possibly, in the last six months. I wonder what the hon. Gentleman thinks his colleagues were.

Acute and Psychiatric Hospitals (Food)

Mr. Longden: asked the Minister of Health what was the result of his Department's recent study of the cost of food in acute hospitals; and when he expects to receive the result of a similar study covering psychiatric hospitals.

Mr. K. Robinson: The conclusions of the study of the cost of food in acute hospitals were conveyed to hospital authorities in letters of 14th November, 1963 and 31st December, 1964, of which I am sending copies to the hon. Member. The result of a similar study covering hospitals for mental illness will be available later this year.

Mr. Longden: Is the right hon. Gentleman satisfied that patients in psychiatric hospitals are receiving enough to eat?

Mr. Robinson: I have no reason to believe the contrary, although I expect that the results of this study will show some disparity in the cost of food between acute and psychiatric hospitals because of the greater number of elderly patients in the latter whose requirements of food will be less. In addition the protein content of their meals will not necessarily be the same. There is likely to be a difference.

Lord Balniel: Does the right hon. Gentleman agree that the discrepancy between the cost of food in acute hospitals and in psychiatric hospitals is very wide? Although there are certain reasons, such as special diets which the right hon. Gentleman just mentioned, is he aware that there are many people who feel that this is perhaps not quite an adequate answer and, when he receives the report of the study, will he give it urgent attention?

Mr. Robinson: Yes; the disparity is wide, but as to whether it is too wide or not, we must await the results of the study.

Acute and Psychiatric Hospitals (Nurses)

Mr. Longden: asked the Minister of Health how many more nurses, male and female, are now needed in the acute hospitals and in psychiatric hospitals, respectively; and what steps he is taking to obtain them.

Mr. K. Robinson: Each employing authority determines its staffing needs, and information is not collected centrally about the additional number of staff required to meet those needs. Pay increases are under negotiation in the Nurses and Midwives Whitley Council, and I am discussing with regional hospital boards ways of improving methods of recruitment.

Mr. Longden: Can the right hon. Gentleman say what the discrepancy is? How many nurses are we short of in these two kinds of hospital? Would it not be a good thing to encourage male nurses in psychiatric hospitals at least not to retire too soon by changing the earnings rule? Now, if they retire and take part-time employment outside the Government service, their pension is not affected, but if they take other part-time employment inside the Government service it is. Would it not help to alter the earnings rule so as to encourage them to stay on after 55?

Mr. Robinson: On the second part of the hon. Gentleman's supplementary question, which does not strictly arise out of this Question, the earnings rule is not peculiar to the hospital service. Perhaps the hon. Gentleman will be good enough to put a Question down if he wishes to ask about that. On the first part, the latest figures I have available, for September, 1964, show that the total number of hospital nursing and midwifery staff in all grades is the highest so far recorded.

New Maternity Beds

Mr. Boston: asked the Minister of Health what is his policy on the provision of new maternity units other than those incorporated into new or existing hospitals.

Mr. K. Robinson: Except in special circumstances, all new maternity beds will be provided at new or redeveloped general hospitals.

Mr. Boston: Will my right hon. Friend confirm that it is his policy, unlike that of the previous Government, to provide enough places so that not only women who need to have their babies in hospital but those who want to do so can do so? Will he accept that there will, therefore, have to be more maternity units in other places separately created?

Mr. Robinson: It will be necessary to increase the maternity provision in the country, and a large number of schemes are in progress or planned. I remind my hon. Friend that the Cranbrook Committee recommended that general practitioner maternity beds should be within or close to consultant maternity hospitals or general hospitals with maternity departments.

Hospital Building Programme (Review)

Mr. Wallace: asked the Minister of Health when he expects to complete his review of hospital building; and if he will make a statement.

Mr. K. Robinson: I have asked hospital boards to send me their preliminary proposals by 1st November, 1965. I outlined the objectives of the review in the statement I made on 8th February.

Mr. Wallace: Could my right hon. Friend indicate when he thinks the review is likely to be published?

Mr. Robinson: I can express a hope, and that is that we may be able to publish the results of the review during the first half of 1966.

Mr. Wood: Is the right hon. Gentleman aware of the very considerable disquiet felt in all parts of this House about projects which are being postponed, and will he give a firm undertaking now that, as was promised last October, the resources available are going to be greater than they were for the hospital programme which the previous Government had in mind?

Mr. Robinson: Of course, any postponement is bound to cause disappointment in some area. I really must make it clear to the right hon. Gentleman and to the House that postponements during the current year are on a substantially smaller scale than took place in any of the previous annual reviews of the regional


hospital plan. I repeat what my hon. Friend said in answer to an earlier supplementary question—that if I had not provided an extra £5 million over and above what the previous Government had intended to allocate for the current financial year the number of postponements would have been substantially greater.

Mr. Lubbock: Can the right hon. Gentleman say whether there is to be a similar review of local authorities' health and welfare plans?

Mr. Robinson: Yes, there is, and I hope to send a circular to local health authorities in the very near future.

Salford Royal Hospital

Mr. Carter-Jones: asked the Minister of Health if he will now give the location and possible completion date for the new Salford Royal Hospital.

Mr. K. Robinson: I am unable to add to the Answer given to my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith) on 15th March.

Eccles and Patricroft Hospital (Midwives)

Mr. Carter-Jones: asked the Minister of Health if he is satisfied that the local hospital management committee will be able fully to staff the Eccles and Patricroft Hospital with qualified midwives if and when it becomes a maternity hospital; and if he will make a statement.

Mr. K. Robinson: I do not underestimate the difficulties, but have no reason to suppose that they would be insuperable.

Mr. Carter-Jones: While thanking my right hon. Friend for that Answer, may I say that I am rather perturbed at the delay over Salford Royal Hospital? In view of the fact that there is a difficulty of staffing the Eccles and Patricroft Hospital, may I ask my right hon. Friend to reconsider the closing of this hospital in the light of the importance of continuing its existence for general purposes? It is most vital to the area.

Mr. Robinson: I must tell my hon. Friend that this decision has been reached by the regional board after a very careful consideration of all the circumstances, and the board is satisfied that this change

is in the best interests of the hospital service in the area. However, if my hon. Friend likes to write to me about any misgivings he may have I shall certainly be very glad to consider them.

Building Maintenance Staff (Bonus)

Mr. Orme: asked the Minister of Health if he will report on the subcommittee set up three years ago in the National Health Service to report on an incentive bonus scheme for skilled building craftsmen.

Mr. K. Robinson: I would refer my hon. Friend to the reply I gave to the hon. Member for Down, North (Mr. Currie) on 18th May.

Mr. Orme: Is my right hon. Friend aware of the serious concern now being expressed amongst these Health Service workers, and that there is in fact a strike scheduled for 14th June amongst workers who have not taken part in that type of industrial dispute for a number of years? In view of the urgency of the situation, would he not reconsider the question of giving early consideration to their justifiable claims?

Mr. Robinson: I must remind my hon. Friend that this matter has not been neglected. We are going ahead with the experimental scheme, and I am told that the experimental approach is approved by the staff side of the Whitley Council. Consideration of this matter is being carried out by a joint subcommittee of the Builders' Committee of the Ancillary Staffs Council, which it was agreed to set up in July, 1963, and which first met in October, 1963, which is a good deal less than the three years ago mentioned in this Question.

Mr. Currie: Will the Minister consider making some temporary authorisation of an increase for these workers pending the outcome of the report?

Mr. Robinson: That is a matter for the appropriate Whitley Council.

Mr. Alfred Morris: Is my right hon. Friend aware that for workers on such meagre incomes to threaten industrial action is in itself a comment on the seriousness which they attach to the situation? Will he agree to bring pressure to bear on the parties concerned


to speed up these negotiations as much as possible?

Mr. Robinson: I can only say that I am anxious to see this experimental scheme under way, and I shall do what I can to expedite it.

Mr. Frank Allaun: My right hon. Friend says that there has not been any neglect. Is he aware that for nearly two years under the previous Government, and for six months under this Government, these men have had to work below the district rate paid to other workers doing similar jobs?

Mr. Robinson: I said that the problem was not currently being neglected, or at least that is what I intended to say.

Mr. Charles Morris: Is my right hon. Friend aware that the delay in implementing an incentive scheme is causing considerable difficulty for hospital boards in competition for labour, and that there is a tremendous shortage of this category of worker, which is creating difficulties in the general hospital service?

Mr. Robinson: Yes, Sir, but perhaps I should point out to my hon. Friends that incentive bonus schemes such as are applied in industry, and even in some local authorities, are not easily introduced into the very different conditions of work in hospitals, partly because of the nature of the work, and partly because of the relatively small size of the labour force involved. But the matter is occupying our urgent attention.

Mr. Orme: Owing to the unsatisfactory nature of my right hon. Friend's reply, I beg to give notice that I shall raise this matter on the Adjournment at the earliest opportunity.

Oral Answers to Questions — MINISTRY OF HEALTH

Ambulance Services

Mr. Kenneth Lewis: asked the Minister of Health what action he proposes to take to speed up the movement of ambulances to accidents when they are called.

Mr. Loughlin: My right hon. Friend is not aware of any general difficulties but if

the hon. Member has any particular case in mind I shall be glad to look into it.

Mr. Lewis: Is the hon. Gentleman aware that about three weeks after I tabled this Question I was involved in a motor car accident and have nothing but praise for the ambulance service which attended to me and others involved in the accident? However, what I intended to ask the hon. Gentleman when I tabled the Question was: does he not think that there is some need for co-ordination, because certain areas do not seem to operate an all-night ambulance service while others do and there are differences between parts of the country in regard to the type of support given at night, particularly in regard to road accidents?

Mr. Loughlin: All local health authorities are charged with the responsibility of providing as a priority adequate emergency ambulance services. There are bound to be variations between one area and another. Local health authorities are human. If any hon. Members would give me particulars of cases where there is extreme difficulty, we shall be only too glad to do something about them.

Personal Medical Record Cards

Mr. Costain: asked the Minister of Health what consultations he has had with the British Medical Association, regarding the use of personal medical cards with emergency information in case of accidents; and whether he will make a statement.

Mr. Loughlin: My Department, in consultation with the British Medical Association, has arranged for the trial use of personal medical record cards in 20 practices.

Mr. Costain: Dose the hon. Gentleman accept that medical cards are a help and could save life in the event of an accident? Will he do all he can to encourage the general public to carry such forms?

Mr. Loughlin: We believe—that is the operative term—that medical cards can be of immense value in certain circumstances. We have trials in operation at present, some in Birmingham and some in Norwich, and we are mixing them as between urban and rural districts. We


hope to receive the reports in the summer, and then the medical practitioners will tell us whether the cards have real value or not.

Foot Deformities

Mr. Ioan L. Evans: asked the Minister of Health what further consideration has has given to the suggestion that steps be taken to publicise the dangers of foot deformities through the wearing of pointed shoes by young people; and what has been the outcome of his consultation on this matter with the Secretary of State for Education and Science.

Mr. Loughlin: I have nothing at present to add to my reply to my hon. Friend on 5th April.

Sir Knox Cunningham: Has the hon. Gentleman any information about the wearing of pointed shoes in the Middle Ages? Is the danger not rather a matter of wearing shoes which are too small than of a particular shape?

Mr. Loughlin: I should not like to get involved in a discussion about what people wore in the Middle Ages. But if the hon. Gentleman means the middle age in normal life, my advice—I have to be guided by my advice—is that most of the deformities take place through the wrong type of shoes being worn before the age of 16. There is a working party studying the problem. After it has reported we may be able to give the House much more information about the matter.

Mr. Evans: Does my hon. Friend realise in relation to what he has said that it is recognised that it is due not only to ill-fitting shoes but to badly-designed shoes? Will he in his consultation with the Secretary of State for Education and Science consider the possibility of giving chiropodists access to schools and school clinics so that younger childen can be informed about the dangers that they are laying up for themselves through wearing ill-fitting shoes?

Mr. Loughlin: The suggestion that we should give chiropodists access to the schools is a matter for my right hon. Friend the Secretary of State for Education and Science. My hon. Friend may be pleased to learn that the working party will include representatives from the Consumer Council, the trade research

organisation and the British Medical Association. I feel sure that all aspects of the problem will be considered.

Mr. Kenneth Lewis: Will the hon. Member say whether this is a working party or a walking party? Would it be a good idea to include some Members of Parliament in it in view of the number of Divisions which we are having on the Finance Bill?

Regular Medical Examinations

Mr. Cordle: asked the Minister of Health whether he will give publicity to the facilities which now exist for regular routine medical examinations and their desirability in the interest of good health; and whether he will extend the facilities for mass-radiography for the early diagnosis of lung diseases, by setting up clinics for regular periodic medical examinations.

Mr. Loughlin: Local publicity is already given to existing facilities. I am advised that regular medical examinations are of value chiefly for selected groups of people or for specific purposes; apart from screening for cervical cancer my right hon. Friend has no plans for a general extension of such services at the present time.

Mr. Cordle: Is the Minister aware that there are many patients, both of medical practitioners and of hospitals, who are suffering from chronic diseases and who could have had an alleviation or an avoidance of the disease had it been detected in its early stages? I wondered whether a scheme could be set up for more regular check-ups, perhaps on a yearly basis. Surely that would eventually reduce the number of cases as well as the expensive and long treatment.

Mr. Loughlin: The hon. Member ought to be very careful here. There may be a case to be made for routine examinations for specific diseases, but our medical advice is that it would possibly even be dangerous to institute a routine examination of a general kind on a systematic basis, because we should have a considerable number of people bothering about minor symptoms and thinking that they had the disease.

Mr. Tilney: Is the hon. Member aware that in diabetes and certain forms of


cancer there is a fear of the unknown and that early action might prevent much future suffering?

Mr. Loughlin: There is some doubt whether this is so. If I may use diabetes as an illustration, medical opinion is that it might be inadvisable to institute routine screening for diabetes at present until some of the causes of the disease are known.

Mr. Wood: Does the argument which the Minister is putting forward also apply to psychological screening for cancer which the Government believed absolutely right and were trying to carry forward?

Mr. Loughlin: It may well be that the arguments which one applies to a general issue would apply to a specific issue. The right hon. Gentleman ought to know that we are completely guided by medical opinion in this respect. If he were in the same position as we are, he would have to do the same; he would have to be guided by medical opinion—as we are being guided by it.

Sir Knox Cunningham: Is it not a fact that medical opinion on the other side of the Atlantic is very much in favour of a general check-up at stated periods? Will not the Minister also take that into consideration.

Mr. Loughlin: I do not know why the hon. and learned Gentleman is so self-righteous. We are taking into account not only medical opinion on this side of the Atlantic but medical opinion on the other side of the Atlantic, too.

Dental Charges

Mr. Weatherill: asked the Minister of Health, in view of the need to end the present uncertainty in the dental profession and among members of the public generally about the abolition of dental charges, if he will state whether he intends to introduce legislation on the subject next Session.

Mr. K. Robinson: I cannot say when I shall be able to introduce legislation, and I hope no patient will relay seeking dental treatment which he needs.

Mr. Weatherill: Is my right hon. Friend aware that many patients are putting off treatment which they ought to

have now and that many dentists, and particularly dental mechanics, find that they are not as busy as they ought to be because of this? Would he bear in mind that many old-age pensioners who do not apply for National Assistance, or may not qualify for it, find the £5 charge a very heavy charge to bear? Would he consider bringing in legislation to meet this particular circumstance?

Mr. Robinson: The latter complaint comes a little ill from the Conservative side of the House. My information does not confirm what the hon. Member says. The latest figures show that the number of courses of treatment given by dentists continues to rise.

Mr. Biggs-Davison: While not accepting that is necessary to abolish these charges, may I ask the Minister why the Government think it wrong to have prescription charges and right to have dental charges?

Mr. Robinson: I do not think that that conclusion can be drawn from the Government's actions so far.

Drugs

Mr. Walden: asked the Minister of Health (1) what action he is considering as a result of the report on cheap drugs written by Mr. F. G. Stock, the City Analyst of Birmingham, a copy of which has been sent to him; and
(2) if he will now take steps to set up a central testing unit to test all drugs after manufacture.

Mrs. Joyce Butler: asked the Minister of Health, in view of public concern about the danger from sub-standard imported drugs, as revealed by the recent report of the City of Birmingham Analytical Laboratories, a copy of which has been sent to him, what action he proposes to take to establish an adequate system of control.

Dr. Summerskill: asked the Minister of Health if, while awaiting the findings of the inquiry into the drug industry, he will introduce regulations governing the manufacture, testing and sale of drugs.

Dr. Wyndham Davies: asked the Minister of Health if, in view of the reports of the City Analyst of Birmingham and the subsequent report in the medical


press of increased toxic reactions with foreign-manufactured antibiotics, he will now take steps to supervise the activities of small mushroom firms attempting to take advantage of Sections 41 and 46 of the Patents Act, 1949, and lacking the facilities or pharmaceutical experience of established companies.

Mr. K. Robinson: In the course of the current review of medicines legislation I am considering what measures are necessary to secure that checks on the safety, quality and efficacy of drugs used in this country meet present-day requirements.

Mr. Walden: Is my right hon. Friend aware that that reply will give a great deal of satisfaction? Will he bear two other points in mind? First, will he not agree that Mr. Stock, the Birmingham City Analyst, of whom we are all proud in Birmingham, in his analysis of tetracycline paediatric drops performed a national service? Will he accept that although many people see the need for importing cheap foreign drugs, they are extremely concerned that the tests on such drugs should be thorough and exacting?

Mr. Robinson: We are grateful for the discovery which Mr. Stock made. Certificates of analysis in respect of drugs imported by my Department under Section 46(1) are supplied by the overseas manufacturer for each batch of drugs imported for hospital use. We are aware that the present legislation is not sufficient on this matter because, except for a limited range of substances such as sera-vaccines and injectible antibiotics, the law as it stands provides no direct means of requiring manufacturers to incorporate adequate quality controls in the process of production.

Mrs. Butler: Can my right hon. Friend give any indication whether it will be possible to bring forward his comprehensive legislation to an early date in view of the great need for adequate quality in both home and imported drugs? In the meantime, is there any means by which he could insist on the quality control procedures of manufacturers and importers being published and being made available?

Mr. Robinson: I think that in the interim we probably must rely on the powers which the food and drugs authorities already have, limited though they are. I am anxious that there should be no avoidable delay in introducing this legislation, but my hon. Friend knows that it is not for me to decide the time of the introduction of the Bill.

Dr. Summerskill: Would not my right hon. Friend agree that there is indiscriminate distribution of inadequately tested drugs by unscrupulous firms which are acting from a profit motive? Would not it be possible, while this is going on, to institute a Government testing and licensing agency straight away, because the public is in some danger from these drugs?

Mr. Robinson: I assure my hon. Friend that the quantity of what are called cheap drugs imported from foreign sources by importers for profit is a very small proportion of the total consumption of drugs in this country. I am not satisfied that a central testing unit is necessarily the most effective provision, but, even so, I do not think that we could implement this or the other suggestion of my hon. Friend without legislation.

Mr. Wood: Would the right hon. Gentleman mention to his right hon. Friends that legislation on this subject is likely to be more acceptable to the Opposition than some of the other proposals that they have in mind?

Mr. Braine: Will the right hon. Gentleman take note that, important as this question of drug testing is, it is only one aspect of the necessary reforms in medicines legislation? Would he also take note that I am sure that hon. Members on both sides feel that there is a degree of urgency about the need for reform? Could he urge his colleagues to bring forward comprehensive legislation on this matter as soon as possible?

Mr. Robinson: I have already assured the House that I want to bring it forward as soon as I can. We have not quite finished the necessary consultations, but certainly the Measure will be ready for presentation before very long. The hon. Gentleman need have no doubt that it will be a thoroughly comprehensive Bill when it is introduced.

Dental Charges (Students)

Sir J. Langford-Holt: asked the Minister of Health whether he will introduce the necessary amending legislation to relieve students who reach the age of 21 from paying dental charges when they are receiving full-time education or when they are dependent on grants.

Mr. Loughlin: No, Sir.

Sir J. Langford-Holt: Whereas the difference between earning and non-earning might be a valid distinction in this respect, can the hon. Gentleman explain the validity of the distinction between 20 years and 21 years?

Mr. Loughlin: A question is bound to be raised wherever one puts the line. If one took 22 or 23, the same question could be asked: what is the difference between 22 and 23?

Sir J. Langford-Holt: One.

Mr. Loughlin: I was attempting to deal with the question seriously, because the hon. Gentleman asked me what was the difference between 20 and 21. We appreciate that there are bound to be anomalies in this sort of matter where-ever one fixes the age.

Sir J. Langford-Holt: The distinction I am inviting the hon. Gentleman to draw is as between a person who is earning and one who is not earning, in which case whether the age be 21, 22 or 23 is entirely irrelevant.

Mr. Loughlin: I should be entirely out of order if I answered that supplementary question on the basis of this Question. If the hon. Gentleman wishes to invite me to make observations of that kind, perhaps he will put a Question down.

Infectious Diseases (Compulsory Medical Examinations)

Mr. Peter Griffiths: asked the Minister of Health (1) if he will introduce legislation to implement Recommendation No. 8 of the committee of inquiry into the Aberdeen typhoid outbreak;
(2) if he will seek to amend Section 38 of the Public Health Act, 1961, to extend the power of compulsory examination to

persons suspected of carrying a disease such as typhoid.

Mr. Loughlin: My right hon. Friend has this matter under consideration.

Mr. Griffiths: May I ask whether the hon. Gentleman is aware of the great urgency in this matter, since the experience of Aberdeen, that a small minority of people refused to be examined, was repeated in Smethwick recently, and should there be an outbreak this would be a weakness in dealing with it by medical officers of health?

Mr. Loughlin: As I said, my right hon. Friend has this matter under review. The comments of interested bodies have been sought in relation to the Milne Recommendation No. 8, and we are reexamining the question of the Public Health Acts as well as the Food and Drugs Acts. I think the hon. Member can take it that—without my being associated in any way with his colour prejudices—

Hon. Members: Withdraw.

Sir K. Joseph: On a point of order. Is it in order for the hon. Gentleman to make a quite gratuitous comment like that in answering a Question on the Order Paper?

Mr. Speaker: I am in this difficulty. I did not, strangely enough, hear what the hon. Member said. Would he be good enough to repeat it?

Mr. Loughlin: I said, "without being associated in any way with the hon. Gentleman's colour prejudices".

Sir Knox Cunningham: Shocking.

Mr. Speaker: That is a quite irregular use of an Answer, and that part of the phrase must be instantly withdrawn.

Mr. Loughlin: Mr. Speaker, I withdraw it immediately.

Dental Drills

Mr. Kenneth Lewis: asked the Minister of Health what percentage of the sale of dental drills supplied to hospitals and the dental profession is imported from the United States of America and Europe, respectively.

Mr. Loughlin: In 1964–65, of the expenditure on dental drill units provided for the hospital service, in England and Wales the proportions imported from the United States of America and Europe were less than 1 per cent., and approximately 35 per cent., respectively. General dental practitioners provide their own equipment, and we do not know how much of it is imported.

Mr. Lewis: Is the Parliamentary Secretary aware that a fair amount of money is being spent on the importation from America of a drill which is available in the same type in this country? Would it not be better to save dollars?

Mr. Loughlin: On the percentage figures I think the total expenditure is not particularly great, but if the hon. Gentleman would care to let me have details I should be glad to have a look at them.

Health Services (South-West Region)

Mr. Dean: asked the Minister of Health what proposals he has for increasing the resources available for hospitals and local health services in the South-West, in view of the large number of old people who live in this region.

Mr. K. Robinson: I will consider whether any modification in the allocation of resources between hospital boards is necessary when I have the results of the current review in which I have asked boards to ensure that not only a due, but an early share of what is available should be devoted to the geriatric services. The resources allocated to local health services are for each local health authority to determine.

Mr. Dean: I am obliged to the right hon. Gentleman for that information, but will the Minister bear in mind that the recent report on the economy of the South-West has made it quite clear that the proportion of old people in the population in that region is much greater than such proportion is in any other region, and that that proportion is almost certain to grow?

Mr. Robinson: Yes, but I should tell the hon. Gentleman that the regional board has got many schemes either in hand or planned for additional geriatric

accommodation, and I recently announced that a new 60-bed geriatric unit would be started at Manor Park, Bristol, at the end of this year. Perhaps I could add that the capital allocations for this region in the two previous years were £2·4 million, and £3·4 million, and this year we have been able to increase them to £4 million.

Mr. Scott-Hopkins: Is the right hon. Gentleman aware that there is still a shortage of geriatric beds in Cornwall in particular, and that if his previous answer, when he said he was going to review the kind of beds for old, retired people, means anything, Cornwall should come in for a considerably higher proportion of grant?

Mr. Robinson: I have no doubt that that consideration will be taken into account by the board, and by my Department when it gets the board's revised plans.

Mr. Scott-Hopkins: How soon?

Mr. Peter Mills: Will the right hon. Gentleman bear in mind that this is a very real problem? We like to welcome people who come to retire in glorious Devon, but it does create a problem. Could he look into the idea of taking over some of the older houses and converting them into hospital units?

Mr. Robinson: It really is not for me to take those decisions. It is for the regional board, with the allocation provided for it, to do the best it can according to the priorities which it thinks are right.

Oral Answers to Questions — HOME INFORMATION SERVICES

Publications

Mr. Lipton: asked the Paymaster-General if he will publish in HANSARD the reply he sent to the hon. Member for Bournemouth, West (Sir J. Eden) about the regular publications sponsored by the Government Information Service.

The Paymaster-General (Mr. George Wigg): I wrote to the hon. Member for Bournemouth, West on 20th May and I am circulating the letter in the OFFICIAL REPORT. I am also sending the hon. Member a copy of the Stationery Office catalogue, "Government Publications",


which is issued monthly and annually and which contains particulars of those publications published by the Stationery Office.
I wrote to all Government Departments on 21st May for details of regular publications for which they are Departmentally responsible and which do not appear in any published lists. The replies show that there is a vast number of such publications. Because the information is so voluminous, I am arranging for a copy of the list to be placed in the Library.

Mr. Lipton: I thank my right hon. Friend for that Answer, which shows that he was not attempting to evade the issue, as was suggested last week. Will he give an indication of how much it has cost to provide or collect the information, which could have been easily obtained more cheaply through other channels?

Mr. Wigg: I am much obliged to my hon. Friend for giving notice to my office this morning that he intended to ask that supplementary question. I have tried to get information on the point. It is difficult to make precise calculations, but it may be taken from a sample that the cost amounted to several hundreds of pounds.

Mr. Biggs-Davison: In view of this heavy burden, can the right hon. Gentleman assure us that he has enough staff in his Department for the discharge of his multifarious responsibilities?

Mr. Wigg: I shall never have enough staff to answer all the silly questions I am asked.

Following is the letter:

20th May, 1965.

In answering your Question in the House on 17th May about regular publications sponsored by the Government's information services I said that I was making inquiries and would let you have the results.

As I made clear in my supplementary answers, the question of publications sponsored by the overseas information services is for the Foreign Office. For this information, therefore, you should address your question to that Department.

In so far as the home information services are concerned, details of the regular publications available on payment are listed in the Stationery Office catalogue "Government Publications". This is issued monthly and annually and I am enclosing a copy of the latest issues.

In addition there are certain publications produced by the Central Office of Information for distribution at home. These are as follows:—

Youth Service (Department of Education and Science).

Officer (Ministry of Defence).

Broadsheets on Britain (Department of Economic Affairs).

D.E.A. Progress Report (Department of Economic Affairs).

Talking Points on Britain's Economy (Board of Trade).

The first of these is available on subscription; the second is available free to schools, careers masters, etc., and the remainder are issued free to a special mailing list.

I am making further inquiries of all Departments to obtain information about any regular publications for which they are solely responsible and will write to you again when they are completed.

George Wigg.

Sir John Eden, Bt., M.P.,

House of Commons,

London, S.W.1.

Orders of the Day — FINANCE (No. 2) BILL

Considered in Committee [Progress, 27th May].

[Dr. HORACE KING in the Chair]

Clause 31.—(REPLACEMENT OF BUSINESS ASSETS.)

3.31 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I beg to move Amendment No. 430, in page 37, line 11, to leave out "not later than" and to insert:
in the period beginning twelve months before and ending".

The Chairman: With that Amendment we are discussing also Amendment No. 250, in page 37, line 11, leave out "twelve months" and insert "three years".

Amendment No. 431, in page 37, line 13, at end insert:
or at such earlier or later time as the Board may by notice in writing allow".

Amendment No. 231, in page 37, line 13, at end insert:
but this period shall be extended to three years, or further at the discretion of the Inland Revenue, in the event of the old assets having been acquired by compulsory purchase powers o a negotiated settlement under threat of compulsory purchase powers or the old asset having been destroyed by fire".

Amendment No. 261, page 37, line 22, at end insert:
Provided further that in relation to old assets which were destroyed or damaged by fire or accident this subsection shall have effect as if for the reference to "twelve months" there were substituted a reference to "twelve months or such longer period as the Board may consider to be reasonable having regard to all the circumstances".

Amendment No. 403, in page 37, line 22, at end insert:
Provided further that in relation to ships and aircraft this subsection shall have effect as if for the reference to "twelve months" there were substituted a reference to "three years or such longer period as is reasonable having regard to all the circumstances".

Mr. MacDermot: I shall discuss with this Amendment the second one in the name of my right hon. Friend—Amendment No. 431. These two Amendments

are designed to meet points which have been put to us in representations from the Federation of British Industries, and the Association of British Chambers of Commerce, and I think that the points which they are designed to meet have given rise to a number of other Amendments on the Notice Paper which we are discussing with this Amendment.
The first point deals with the question whether the relief ought to apply in cases where the acquisition of a new asset takes place before the disposal of the old asset. There are particular cases where this is common practice. Examples of this are buying ships, acquiring a new factory, into which the old plant and machinery may be moved, acquiring a new warehouse, and so on. This seems to be a sound case, and a sound argument, so the Amendment will provide the relief given in the Clause if the new asset is acquired, or an unconditional contract to acquire it is entered into, within a period of 12 months before or after the disposal of the old asset.
The second point put to us was that the time limits should not be absolutely rigid, and it was suggested that we should take for the Inland Revenue a discretionary power to allow relief where the new asset was acquired rather more than 12 months before or after, and so we have agreed to give a general discretion to the Board to extend the 12 months' time limit either way. This will meet a point raised by the hon. Member for Bromsgrove (Mr. Dance), where farmers' land is compulsorily acquired and it may take more than 12 months before they can find another suitable farm.
Our intention is that the Board's discretion will be exercised in special cases, but in the normal way one would expect replacement to take place within 12 months. The Board would be prepared to exercise its discretion in a case where it was shown that it was not possible to replace the asset within the ordinary time limit by the use of ordinary foresight and prudence. If that can be established, if the person can show that, acting reasonably with ordinary foresight and prudence, he was not able to replace within the 12 months period, the Revenue would be ready to use its power to allow a longer period.

Mr. Edward Heath: As the Financial Secretary said, the Amendment is designed to meet representations which have been made to him, and also, I think he will agree, to meet the Amendment put down by the Opposition before his Amendment.
The hon. and learned Gentleman has dealt with the point which is very important for us, that of the use of discretion by the Board. He will agree that in the time of one year each side, a total of two years, he has not gone as far as our Amendments argued. On the other hand, he has met part of some of the Amendments put down by my right hon. and hon. Friends, who suggest that a longer period should be given at the discretion of the Board.
This covers such things as compulsory purchases, cases where the assets are damaged or destroyed by fire, in particular ships and aircraft, which are mentioned in one of the Amendments, and also agriculture, in which there is to be a change of farm.
I was glad to hear the Financial Secretary say that where due reason could be shown why it was not possible to do this in the normal time the Board would be sympathetic and generous in its approach, and on that understanding I would urge my hon. Friends to accept the Amendment.

Amendment agreed to.

Further Amendment made: In page 37, line 13, at end insert:
or at such earlier or later time as the Board may by notice in writing allow".—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 432, in page 37, line 38, to leave out "1" and to insert:
Class 1. Assets within the heads A and B below. A.

The Chairman: I would remind the Committee that with that Amendment we are discussing the Government Amendments Nos. 433, 434 and 435.

Mr. MacDermot: These four Amendments are again designed to meet representations from the F.B.I. and the Association of British Chambers of Commerce. It was represented to us that the first two classes of assets in subsection (6) ought to be amalgamated. The argu-

ment was put forward that a man might sell a freehold factory in the South of England in order to move to a development district, and that he would use the proceeds of the sale to equip with machinery the new factory which he was leasing, for example, from the Board of Trade. In such a case, as the Bill stands he would not be able to set off the capital gains on the factory he had disposed of against the machinery which he was acquiring for the new premises.
It was thought that it was only reasonable that the gain arising on the disposal of the factory should not be taxed if it were to be reinvested in assets within either the first or second category. We have found this argument persuasive, and, by these Amendments, are proposing to produce the effect of amalgamating the first two categories.

Amendment agreed to.

Further Amendments made: In page 38, line 3, leave out "2" and insert "B".

In line 6, leave out "3" and insert "Class 2".

In line 7, leave out "4" and insert "Class 3".—[Mr. MacDermot.]

Mr. Peter Walker: I beg to move Amendment No. 315, in page 38, line 7, at the end to insert:
5. Goodwill.

The Chairman: With this Amendment it will be convenient to take Amendment No. 266, in page 38, line 2, at end insert:
or any rights or interest in connection with such land".

Mr. Walker: Yes, Dr. King.
Encouraged by the speed with which the Government are accepting sensible Amendments this afternoon—most of which acceptances follow recommendations made by hon. Members on this side of the Committee—I hope that we shall quickly dispatch this Amendment. I am sure that any sensible Government would be willing to accept it.
Under the Clause a number of business assets are allowed when transferred. I would impress upon the Committee the fact that the Amendment would not enable people to avoid the Capital Gains Tax; it would merely mean a deferment of the tax until a later stage. In asking the Committee to accept the Amendment we are putting forward the reasonable thesis that where there has been a transfer


of goodwill there should be no tax until a later stage, when it is finally realised.
This is of obvious importance to the professional and service industries. One example with which we would all be familiar is the case of an industrial insurance agent who buys a book covering a certain district. If he works hard and increases his business, so that the premium income from the book rises during the period when he is responsible, he can sell that book at a capital appreciation. In many cases such an agent sells the book because he is moving to another locality, where he will purchase another book.
That is but one example of a field which is well known to everybody in the Committee. There are many other examples—examples of insurance premium firms, and so on—where the main asset is the goodwill. I suggest that it is a nonsense to provide that if a person sells a goodwill asset in order to move to another locality he is immediately subject to a 30 per cent. Capital Gains Tax. Amendment No. 266, which you have allowed to be discussed with this one, Dr. King, draws particular attention to the agricultural argument.
That provides an illustration of how right these Amendments are. Under a discretion given to them in connection with compulsory purchase orders, local authorities have it in their power to pay compensation not only for land, but also for goodwill in the case of a business, a firm, or a horticultural holding. The Clause allows for the transfer of an asset of land but disallows the transfer of an asset of goodwill. I suggest that if both are allowed in the case of a compulsory purchase order, both should be allowed under the Clause.
3.45 p.m.
There are many other cases where the taxation of goodwill will cause hardship. The Government are embarking upon a policy of new towns. Many shopkeepers in these towns will have previously carried on business in other towns. That is obvious, because the new towns endeavour to obtain experienced shopkeepers for their new parades. Shopkeepers therefore sell up their shops in an established town in order to open up in the shopping centre of a new town.
All those shopkeepers will be faced with a 30 per cent. Capital Gains Tax on their goodwill as soon as they move to a new

town. That is another example of how badly the Clause will work unless the Amendments are accepted. People in the professions, shopkeepers and insurance agents will all be adversely affected by the Clause unless the Amendments are accepted. I hope that they are so obviously correct and right that the Financial Secretary will immediately accept their good sense.

Mr. J. T. Price: I want to add a few words on one aspect of the Amendment. I refer to the position of insurance agents. My attention has been drawn to the fact that in its present form the Bill imposes upon insurance agents a requirement to be assessed on any capital increase in the value of their books between the time when they purchase them and the time when they surrender them, on retirement, upon moving to other districts, or because of some other domestic cause.
The Committee will bear with me, I hope, if I briefly explain what happens in these transactions. I have taken the opportunity of writing to the Minister in this matter. He has, therefore, had prior notice that I wished to speak. In the conduct of what is called the industrial insurance business, premiums are collected weekly by door-to-door agents of various companies, on a commission basis. The books which record the business transacted are bought and sold in the ordinary commercial sense. In some parts of the country the practice is to value the books on the basis of 20 times the weekly value of the business. In other words, if £20 a week is collected the company values the book at £400. That varies pro rata according to the relative prosperity of the district concerned.
Even if it were fair, it would be quite impracticable to try to assess at the time of surrender a capital increase in the value of a book which recorded the business that an agent had carried out week by week. For example, if an agent buys a book for, say, £400, at that time it will consist of a list of clients of the company. That list may not be the same when he surrenders the book, perhaps four or five years later, when he changes his job or goes to another district. One of the duties of every insurance agent is to canvass for new business, and if he is a successful agent, he will add constantly to his list of clients. At the time


when he changes or sells the book, the clients could be quite a different group of people from the original group.
I anticipate that my hon. and learned Friend will be able to make some concession in this respect. Even if it were right to assess a capital increase in the way proposed in the Bill, it would be quite impracticable to do so. At the end of the period the agent would have quite a different group of people. Though it might include some of the original names, many new names would be taken into the building up of the value of the business.
I suggest that an agent who sells a book does not necessarily do so to make a profit on the increased business. He may be moving to another part of the country, and, if he buys a book there, he may need to pay an enhanced figure for it. I think that the case here is self-evident for asking for some relief in respect of an insurance agent whose book has increased in value during the period in which he has operated it.

Sir Arthur Vere Harvey: I am sure that the Financial Secretary has been impressed by what has been said by the hon. Member for Westhoughton (Mr. J. T. Price). When proposing this legislation, did the Chancellor take into account what happens in respect of barristers who are allowed to save their earnings until the last year of their practice and so get away with them tax-free? Why is not this method applied also to barristers? It has been known that a barrister has retired with £100,000 free of tax. Why should the small man be hit? May we have an answer, please?

Mr. MacDermot: I am wondering whether I was wise in giving way to the hon. Member for Macclesfield (Sir A. V. Harvey), or whether I should have leapt to my feet as soon as my hon. Friend the Member for Westhoughton (Mr. J. T. Price) had finished speaking. I have had a vested interested in the point which the hon. Member raised. There is a new Clause on the Notice Paper dealing with it and no doubt we shall have time to discuss the problem later. It is not quite the same, one is not there concerned with goodwill.
Turning to the question of goodwill, I assure the Committee that this is a problem which, on consideration, I have found difficult. The object of Clause 31 is to try to afford relief in such a way as to ensure that the Capital Gains Tax does not inhibit the physical development and expansion of industry and commerce. This is why it is, as defined at the moment, related to quite clear and tangible assets.
We come to the question of goodwill and sometimes we are dealing there with a very intangible factor. My hon. Friend the Member for Westhoughton developed a particular case relating to the book of the insurance agent, and it was mentioned by the hon. Member for Worcester (Mr. Peter Walker). It is a clear-cut example of something which, patently, is goodwill and nothing else.
As hon. Members will know, on the sale of a business what is called goodwill is often little more than the residual figure when one has assessed the value of all the fixed assets and arrived at the purchase price. The difference between the two may be called goodwill, whereas very little of it is goodwill in the true sense in which we are discussing that in this Amendment.

Mrs. Freda Corbet: Would it be the case that in respect of a shop, with very little in the way of fixed assets which changed hands, as is likely to happen, for several thousands of pounds, my hon. and learned Friend would regard that as a minimal amount? A shop may change hands at quite a high figure. The assets, apart from stock and a few bits of furniture and fittings, would be very much goodwill. It would represent a very large slice of the figure.

Mr. MacDermot: I entirely agree with my hon. Friend. The case which she has cited I would call a genuine and true case of goodwill. It arises particularly in respect of a retail business or with people such as insurance agents, as has been mentioned. I was seeking to explain why goodwill does not appear in the Bill and what are the arguments the other way.
There is this factor, which, I think, will not be disputed, that in many cases what is called goodwill is, in fact, the residual figure in arriving at a sale price for the business as a whole. What one has


to envisage is not a single transaction but the possibility of several successive acquisitions. The difficulty for the Revenue in policing a concession of this kind, and carrying through a notional cost, is that a whole series of transactions would be considered.
I must warn the Committee that there would be opportunities for evasion. If one is assuming a sale where an overall price has been agreed, it would not be very difficult, perhaps, for an arranged breakdown to be agreed on the price in a way which would produce an artificial loss relating to the fixed assets, which could be claimed straight away, and an artificially inflated goodwill factor, and to defer payment of tax on that. This, again, is something which would make the policing of the provisions in the Clause more difficult for the Revenue.
I have been trying to discover cases where real difficulty or hardship would be caused if we did not include goodwill, and I should be interested to hear examples. Reference was made to agriculture. From my inquiries I do not know that there are many cases—I may have been quited misinformed—where goodwill, as such, operates as a large factor in the disposal of one farm and the acquisition of another.

Mr. Harold Lever: My hon. and learned Friend says the trouble is that this may be used as an engine for tax avoidance. This is not an example of an appreciation in value. The same money, I understand, is laid out in buying new goodwill in some business. That being so, it is difficult to see how, without almost incredible acrobatics, this may be used as an engine for tax avoidance.

Mr. MacDermot: My hon. Friend has raised a point which I wished to raise myself. The hon. Member for Worcester (Mr. Peter Walker) gave the example of a shopkeeper who bought a shop in a new town. That person would not be buying any goodwill. By definition it is a new town. He has disposed of goodwill and has nothing to which to carry it forward, unless the implication in what the hon. Member was saying is the suggestion that the tax which is deferred from the sale of the old goodwill should be capable of being set-off against the cost of the investment in the fixed assets of his

new business, which is what we have done in the last two Amendments in relation to the first two categories.

4.0 p.m.

Mrs. Corbet: Perhaps I can help my hon. and learned Friend. In that case, would there not be a waiting period before the goodwill could be accumulated in the new business in the new town? The money derived from the sale of the goodwill would probably be essential to keep the man while he established himself in his new premises in the new town.

Mr. MacDermot: It would not alter the fact that there would be nothing against which the taxpayer could set off the gain, and that he therefore would not be able, as the matter is framed at the moment, to claim the relief.

Mr. Peter Walker: Surely the point is that this is purely a deferment. Whatever goodwill this shopkeeper has built up during his business life, under the provisions of the Bill, he will be caught at death—if not before—if he sells the whole business at any time. What we are seeking to do is to defer the tax on his first business to enable him to survive. At the end of the day, the tax is taken in any case.

Mr. MacDermot: The Amendment would not do that. If that is what hon. Members are asking for, they want an Amendment which will enable them to defer the tax on the capital gain from the goodwill of the old business against the fixed assets or some other cost of acquisition of the new business.

Mr. Jasper More: The Financial Secretary referred to agriculture, which is involved in Amendment No. 266. For horticulture, of course, goodwill is important as it would be for any other business. With regard to agriculture in general, although this is not entirely the same as goodwill, we have to consider the whole question of tenant rights of farmers, which play an important part in the alteration of a farming enterprise.

Mr. J. E. B. Hill: May I point out that a farmer may have built up a retail milk round with a considerable daily sale of gallonage? If that farmer has to move, he will perhaps hope to build up a new retail milk round in a


new location. He will get value for the round which he is leaving, and he will want to take that money with him.

Mr. MacDermot: The Amendment will do nothing for him, unless he is buying a new farm with a new milk round and is paying for that. Then the Amendment will help him. It is perhaps obvious from what has been said already that there are complicated points here. I shall be glad to consider them if hon. Members will allow me. I give a general undertaking to those with specific points which have not been covered and which are relevant to goodwill, or who have examples of ways in which the case is clearly made out, that, if they will send them to me, I shall consider them before Report.

Sir Stephen McAdden: I have not detained the Committee at all on the Finance Bill and I wish only to add my support to what my hon. Friends have said. I am grateful that the hon. and learned Gentlemen intends to look at this matter again. I am sure that he will recognise that a consideration which does not weigh too heavily with me is the difficulties to which the Revenue may be put. I am more concerned with the difficulties to which citizens will be put.
While it may be difficult for the Revenue to be able to satisfy the very cogent case which has been put forward from both sides of the Committee, I hope that the Financial Secretary will remember that insurance agents are a very powerful body of people, whose advice on all kinds of matters—domestic and sometimes even political—is taken by the thousands of people whom they visit.
Unless the Financial Secretary does something to make this Clause intelligible, he will find himself in a very difficult position.

Mr. J. T. Price: I am sorry to have to rise again, but, while I am pleased that my hon. and learned Friend has said that he will have another look at this before Report, I am not very clear, from what he has said, that he fully understands the point. This is a very serious matter which affects thousands of insurance agents. It is unfortunate that this has become confused with other issues which have been discussed on other

Amendments. I would reinforce what I have already said, by drawing to the attention of my hon. Friend the fact that not all insurance companies—not all the leading six companies, which include the Prudential, the Refuge, the C.I.S. and the Pearl—the big fish in the pond—operate the same system.
For example, some insurance companies long ago ceased to acknowledge the right of agents to have an interest in the book and they employ agents on quite different conditions. The company owns the book and it is not part and parcel of the contract of service of their agent. If one is to perpetuate or accentuate the differential between the agents with an interest in the book on which they are doing their business and the agent who does not have a book, great injustice will be inflicted on those remaining large companies in which the agent's interest in his book is a very important factor in his working conditions.
The book can only be increased in value by the exertions and activities of the agent in securing new business. If the company for whom he works takes the value for the book, it does not have to pay any Capital Gains Tax on increased business. It would, under the terms of the Bill, be the agent who had to pay increases in tax if an officer of my hon. and learned Friend's Department assessed him as coming within the ambit of the Clause. I must seriously press on my hon. and learned Friend and upon the Chancellor that this is not a trivial matter which can be brushed aside. It has to be considered seriously, on its merits. Without any apology, I may say that great injustice will be inflicted on thousands of insurance agents if the Bill is allowed to stay in its present form.

Mr. Harold Lever: The debate has shown that what is required and what my hon. and learned Friend should be thinking about is not merely a more skilfully drafted Amendment to give effect to what was suggested from the Opposition Front Bench, but a totally different view about making goodwill subject to the Capital Gains Tax at all. In that way we would satisfy the objections which have been taken by my hon. Friend the Member for Westhoughton


(Mr. J. T. Price) and my hon. Friend the Member for Peckham (Mrs. Corbet). Would my hon. and learned Friend not bear in mind that goodwill, as such, might reasonably be exempted altogether from the ambit of the Bill? Goodwill is always the result of effort, the building up of a connection and the like.
If my hon. and learned Friend is worried about tax avoidance, I do not want to do anything to disturb the sleep at night of the Revenue officials, who have been inadequately supplied with that useful relaxation because of their deep anxiety on this score. There is a very reasonable way, I would suggest to the Revenue officials, of protecting the Revenue. If one exempts goodwill, one does so on the basis of what it is worth. We must not start with the assumption that everyone is prepared to put down a fraudulent value for goodwill. Contrary to popular assumptions in debates here, most people are prepared to take any lawful step to reduce their tax liability and very few people, correspondingly, are prepared to take any unlawful steps.
I ask my hon. and learned Friend to reflect, with the Chancellor—who has been very reasonable upon most of these matters—whether he could not abandon the goodwill tax altogether. If so, I hope that we shall be spared some oratory from the other side of the Committee. We have heard a good deal about "MacDermot's law", but we might also take account of "Heath's fork"—if my right hon. Friend refuses to give way, he is acting in a spirit of spiteful hatred; if he gives way in a reasonable and fair-minded spirit, that shows how incompetently and inadequately the Bill has been prepared. That is "Heath's fork."
I hope that my hon. and learned Friend will be big enough to accept this blunt domestic instrument and do what he and the Chancellor honestly believe to be right—abandon the Capital Gains Tax on goodwill altogether.

Mr. J. Grimond: As we are giving various prizes for various performances and are attaching so-called mottoes to different individuals, I suggest that we should also have "Lever's balance". It is not an equal balance, but it consists of sticking harpoons into the Government and a few

darts into their opponents. However, this will not be the first time that the hon. Gentleman has finished by voting for the Government. We take that as his right, but we are always very glad to hear from him.
I want to offer the Revenue a crumb of comfort. If it is believed that rabbits may escape the net because of an Amendment which is too generous, I point out, as has already been said, that the tax in this case will be postponed and that one of the occasions upon which people will be caught for tax is on death. Whereas, until now, on the whole, it has paid people to have their assets rather under-valued at death, they will now be caught on a fork of some sort—whether it is "Heath's fork" I do not know—because, if their assets are valued highly, their estate may be caught for high death duties, and if they are valued too low, someone else may be caught for capital gains. Therefore, it is possible that the danger is not as great from accepting the Amendment as the Financial Secretary felt.
I understand that the hon. and learned Gentleman is also to consider Amendment No. 266 and Amendment No. 315. Until the debate this afternoon, I had thought that the compensation paid to certain forms of tenant on giving up their land—and I am thinking particularly of crofters, strictly so-called, within the Crofters Act—would not be affected by the Bill. However, it now occurs to me from what has been said that it may be.
I do not want to give a lecture on the position of crofters, which is complicated to say the least of it, but would the Financial Secretary be good enough to consult the Lord Advocate about the position of crofters and especially about whether the compensation for improvements which some of them are paid when they give up or assign their crofts will fall under Capital Gains Tax? Personally, I do not think that it will, but from what has been said there seems to be that danger. While he is looking at these matters perhaps the hon. and learned Gentleman will consult the Scottish Law Officers on this issue.

Mr. Joel Barnett: I, too, would like to represent the case for goodwill. If my hon. and learned Friend cannot go all the way with the Amendment, I hope that he will at least


consider the position of the small man and accept the exemption of goodwill up to a certain figure.
My hon. and learned Friend said that if we were to allow this sort of Amendment we would leave a loophole for avoidance. He suggested that this could be done by artificially inflating the figure for goodwill while reducing that for fixed assets. However, even without the tax a seller of a business would very much like to do that, because he would then reduce his Income Tax liability, because to reduce the sale price of the fixed assets would reduce what is known as the balancing charge. Equally, one would have to have a rather foolish or badly advised purchaser, because he would be paying more for goodwill, on which he could claim no allowance, and a lower figure for the fixed assets on which 1,e could therefore not claim as much capital allowance.
To suggest that this proposed procedure would be a loophole is to suggest a dealing between a rather foolish purchaser and a seller who is trying to be too clever by half. This is not the sort of means of avoidance which my hon. and learned Friend believes it to be.

4.15 p.m.

Mr. William Baxter: I advise my hon. and learned Friend the Financial Secretary to be very cautious about accepting all that has been said about the impossibility of tax avoidance from this proposal through an attempt to define an indefinable object, because whether goodwill is valued at £X or £A is only a matter of opinion. Such a provision would cause the inspectors of taxes great difficulty in matters of definition. I believe that this could be a loophole which would vitiate the purposes which the Chancellor of the Exchequer has in mind. I agree that goodwill must be given some consideration, but no hon. Member has yet suggested a formula to define it. That would be the difficulty which the Chancellor of the Exchequer would have to meet.

Mr. MacDermot: I am grateful to my hon. Friend the Member for West Stirlingshire (Mr. W. Baxter) as someone who has come to my aid and appreciated that I have had difficulties about this

matter. I assure my hon. Friend the Member for Westhoughton (Mr. J. T. Price) that I am not treating this as a trivial but as a very serious and important matter. In this as in all matters we want to do what is right, but this is not an easy one.
I have certainly found this a very helpful if short debate and I will gladly study all I have been asked to consider. The right hon. Member for Orkney and Shetland (Mr. Grimond), the Leader of the Liberal Party, asked me to consider compensation for improvements carried out by crofters. I believe that they are not within the scope of the Bill, but I will certainly check. I was interested to notice that he appreciated the point, which had certainly occurred to us, about the advantages of overcoming some of our valuation problems by making death the occasion for charge of Capital Gains Tax.
I do not think that I can hold out much hope to my hon. Friends on the broader issue of whether we would consider excluding goodwill from being subject to charge. I cannot see any reason in principle why it should be excluded. My hon. Friend the Member for Westhoughton said that it was usually the result of the personal exertion of the taxpayer, but so are the wages on which Income Tax is paid by the ordinary wage earner. That is a direct tax on the fruits of personal effort and exertion and one of the purposes of the proposed tax is to see that those who own businesses are not in a more favourable position than ordinary wage earners in the taxation of the fruits of their exertions.
That is not to say that on this peculiar question which arises when a person disposes of one business and acquires another we should not allow deferment of the tax on goodwill. I would like to consider that further.

Mrs. Corbet: Would my hon. and learned Friend bear in mind that it is customary when people set up shop for them to purchase a shop, to purchase a business and to purchase its goodwill? If they do not do that, they have to start up a completely new business with very great risks of not being able to make a livelihood. I remind my hon. and learned Friend that shopkeepers do not


normally have skilled trades at their finger ends. Their skill is in building up a business from very little and not allowing it to fade away. They are constantly on the alert and working very hard to keep up their trade. The goodwill price is the measure of the business which is done and can easily be ascertained.

Mr. MacDermot: I fully appreciate that and I had hoped that I had made it clear in what I said earlier that I appreciated that the problem would arise especially for shopkeepers and retail traders.

Mr. Peter Walker: The manner in which the Financial Secretary has treated the Amendment has been remarkable. It is not a complicated Amendment and contains only one word of any importance. It has been on the Amendment Paper for some time and it is an official Opposition Amendment. Yet the hon. and learned Gentleman said that he rather enjoyed the discussion and found it very interesting and he said that it gave food for thought and that he would like to think about it. He should have given Some thought to the Amendment before coming to the Committee.
Representations were made by the hon. Member for Westhoughton (Mr. J. T. Price) on the very important issue of the insurance agents. When I mentioned insurance agents in my first speech, there was a hasty consultation between the Chancellor of the Exchequer and the Financial Secretary and it was quite obvious that they suddenly recognised that

this was a matter of great importance, particularly from a voting point of view, covering many thousands of people, and they said that this was a matter which they wanted to reconsider. The principles outlined for the insurance agent are identical to those outlined for others. The Government should have decided by now either that they are prepared to accept the proposal, or that there are sufficient arguments against it for them not to accept it. We heard only one, the tax avoidance argument, against it, on which I will not comment because that was adequately replied to by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and others.

The Financial Secretary's case is not accepted even by his hon. Friends. All that the Financial Secretary was willing to do was listen to our arguments, show interest, and merely reply that he wanted time to examine the matter further.

Mr. MacDermot: The hon. Gentleman is forgetting that his proposal would not carry out the things he wishes to do.

Mr. Walker: Certainly, my Amendment would carry out many of the things I want to do. If my proposal only partially carried them out, that should be ample reason why the Government should accept the Amendment. No real argument against the Amendment has been adduced by the Financial Secretary, so I must advise my hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 212, Noes 239.

Division No. 152.]
AYES
[4.22 p.m.


Agnew, Commander Sir Peter
Box, Donald
Corfield, F. V.


Alison, Michael (Barkston Ash)
Boyd-Carpenter, Rt. Hn. J.
Costain, A. P.


Allan, Robert (Paddington, S.)
Boyle, Rt. Hn. Sir Edward
Courtney, Cdr. Anthony


Allason, James (Hemol Hempstead)
Braine, Bernard
Craddock, Sir Beresford (Spelthorne)


Amery, Rt. Hn. Julian
Brinton, Sir Tatton
Crosthwaite-Eyre, Col. Sir Oliver


Anstruther-Gray, Rt. Hn. Sir W.
Bromley-Davenport, Lt. -Col. Sir Walter
Cunningham, Sir Knox


Atkins, Humphrey
Brooke, Rt. Hn. Henry
Curran, Charles


Barber, Rt. Hn. Anthony
Brown, Sir Edward (Bath)
Currie, G. B. H.


Barlow, Sir John
Bruce-Gardyne, J.
Dalkeith, Earl of


Batsford, Brian
Bryan, Paul
Dance, James


Beamish, Col. Sir Tufton
Bullus, Sir Eric
Davies, Dr. Wyndham (Perry Barr)


Bennett, Sir Frederic (Torquay)
Burden, F. A.
d'Avigdor-Goldsmid, Sir Henry


Bennett, Dr. Reginald (Gos &amp; Fhm)
Buxton, Ronald
Dean, Paul


Berkeley, Humphry
Campbell, Gordon
Digby, Simon Wingfield


Berry, Hn. Anthony
Carlisle, Mark
Doughty, Charles


Biffen, John
Carr, Rt. Hn. Robert
Douglas-Home, Rt. Hn. Sir Alec


Biggs-Davison, John
Cary, Sir Robert
Dray son, G. B.


Birch, Rt. Hn. Nigel
Chataway, Christopher
Elliot, Capt. Walter (Carshalton)


Black, Sir Cyril
Clark, Henry (Antrim, N.)
Elliott, R. W.(N'e'tle-upon-Tyne,N.)


Blaker, Peter
Cole, Norman
Eyre, Reginald


Bossom, Hn. Clive
Cooke, Robert
Farr, John




Fell, Anthony
Lagden, Godfrey
Powell, Rt. Hn. J. Enoch


Fisher, Nigel
Lancaster, Col. C. G.
Price, David (Eastleigh)


Fletcher-Cooke, Charles (Darwen)
Langford-Holt, Sir John
Quennell, Miss J. M.


Foster, Sir John
Legge-Bourke Sir Harry
Ramsden, Rt. Hn. James


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Lewis, Kenneth (Rutland)
Rawlinson, Rt. Hn. Sir Peter


Fraser, Ian (Plymouth, Sutton)
Litchfield, Capt. John
Redmayne, Rt. Hn. Sir Martin


Gammans, Lady
Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)
Ridsdale, Julian


Gardner, Edward
Lloyd, Ian (P'tsm'th, Langstone)
Roots, William


Gibson-Watt, David
Lloyd, Rt. Hn. Selwyn (Wirral)
Royle, Anthony


Gilmour, Ian (Norfolk, Central)
Longbottom, Charles
Russell, Sir Ronald


Glover, Sir Douglas
Longden, Gilbert
Scott-Hopkins, James


Goodhew, Victor
Loveys, Walter H.
Sharples, Richard


Gower, Raymond
McAdden, Sir Stephen
Sinclair, Sir George


Grant, Anthony
McLaren, Martin
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Grant-Ferris, R.
Maclean, Sir Fitzroy
Smyth, Rt. Hn. Brig. Sir John


Gresham Cooke, R.
Macleod, Rt. Hn. Iain
Spearman, Sir Alexander


Grieve, Percy
McMaster, Stanley
Stainton, Keith


Griffiths, Peter (Smethwick)
McNair-Wilson, Patrick
Stodart, Anthony


Gurden, Harold
Maginnis, John E.
Stoddart-Scott, Col. Sir Malcolm


Hall, John (Wycombe)
Marten, Neil
Studholme, Sir Henry


Hall-Davis, A. G. F.
Maude, Angus
Talbot, John E.


Harris, Frederic (Croydon, N.W.)
Mawby, Ray
Taylor, Sir Charles (Eastbourne)


Harris, Reader (Heston)
Maxwell-Hyslop, R. J.
Taylor, Edward M. (G'gow,Cathcart)


Harrison, Brian (Maldon)
Meyer, Sir Anthony
Taylor, Frank (Moss Side)


Harrison, Col. Sir Harwood (Eye)
Mills, Peter (Torrington)
Teeling, Sir William


Harvey, Sir Arthur Vere (Macclesf'd)
Mills, Stratton (Belfast, N.)
Thatcher, Mrs. Margaret


Harvey, John (Walthamstow, E.)
Miscampbell, Norman
Thomas, Sir Leslie (Canterbury)


Hastings, Stephen
Mitchell, David
Thompson, Sir Richard (Croydon,S.)


Hawkins, Paul
Monro, Hector
Thorneycroft, Rt. Hn. Peter


Heald, Rt. Hn. Sir Lionel
More, Jasper
Tilney, John (Wavertree)


Heath, Rt. Hn. Edward
Morgan, W. G.
Turton, Rt. Hn. R. H.


Higgins, Terence L.
Morrison, Charles (Devizes)
Tweedsmuir, Lady


Hill, J. E. B. (S. Norfolk)
Mott-Radclyffe, Sir Charles
van Straubenzee, W. R.


Hirst, Geoffrey
Munro-Lucas-Tooth, Sir Hugh
Walder, David (High Peak)


Hobson, Rt. Hn. Sir John
Murton, Oscar
Walker, Peter (Worcester)


Hogg, Rt. Hn. Quintin
Neave, Airey
Walters, Dennis


Hopkins, Alan
Nicholson, Sir Godfrey
Ward, Dame Irene


Hordern, Peter
Noble, Rt. Hn. Michael
Weatherill, Bernard


Howard, Hn. G. R. (St. Ives)
Nugent, Rt. Hn. Sir Richard
Whitelaw, William


Hunt, John (Bromley)
Onslow, Cranley
Williams, Sir Rolf Dudley (Exeter)


Hutchison, Michael Clark
Orr, Capt. L. P. S.
Wills, Sir Gerald (Bridgwater)


Irvine, Bryant Godman (Rye)
Orr-Ewing, Sir Ian
Wilson, Geoffrey (Truro)


Jenkin, Patrick (Woodford)
Osborn, John (Hallam)
Wolrige-Gordon, Patrick


Jennings, J. C.
Osbome, Sir Cyril (Louth)
Wood, Rt. Hn. Richard


Johnson Smith, G. (East Grinstead)
Page, John (Harrow, W.)
Woodhouse, Hon. Christopher


Jones, Arthur (Northants, S.)
Page, R. Graham (Crosby)
Wylie, N. R.


Kerby, Capt. Henry
Pearson, Sir Frank (Clitheroe)
Yates, William (The Wrekin)


Kilfedder, James A.
Peyton, John
Younger, Hn. George


Kimball, Marcus
Pickthorn, Rt. Hn. Sir Kenneth



King, Evelyn (Dorset, S.)
Pike, Miss Mervyn
TELLERS FOR THE AYES:


Kirk, Peter
Pitt, Dame Edith
Mr. Ian MacArthur and




Mr. Francis Prm.




NOES


Albu, Austen
Callaghan, Rt. Hn. James
Evans, Albert (Islington, S.W.)


Allaun, Frank (Salford, E.)
Carmichael, Neil
Fitch, Alan (Wigan)


Aldritt, Walter
Carter-Jones, Lewis
Fletcher, Sir Eric (Islington, E.)


Allen, Scholefield (Crewe)
Castle, Rt. Hn. Barbara
Fletcher, Ted (Darlington)


Armstrong, Ernest
Coleman, Donald
Fletcher, Raymond (Ilkeston)


Atkinson, Norman
Conlan, Bernard
Floud, Bernard


Bacon, Miss Alice
Corbet, Mrs. Freda
Foley, Maurice


Bagier, Gordon A. T.
Cousins, Rt. Hn. Frank
Foot, Sir Dingle (Ipswich)


Baxter, William
Craddock, George (Bradford, S.)
Foot, Michael (Ebbw Vale)


Beaney, Alan
Cronin, John
Ford, Ben


Bence, Cyril
Crossman, Rt. Hn. R. H. S.
Fraser, Rt. Hn. Tom (Hamilton)


Benn, Rt. Hn. Anthony Wedgwood
Cullen, Mrs. Alice
Freeson, Reginald


Bennett, J. (Glasgow, Bridgeton)
Dalyell, Tarn
Garrett, W. E.


Bessell, Peter
Darling, George
Garrow, A.


Binns, John
Oavies, G. Elfed (Rhondda, E.)
Ginsburg, David


Bishop, E. S.
Davies, Harold (Leek)
Greenwood, Rt. Hn. Anthony


Blackburn, F.
Davies, Ifor (Gower)
Gregory, Arnold


Blenkinsop, Arthur
Davies, S.O. (Merthyr)
Griffiths, Rt. Hn. James (Llanelly)


Boardman, H.
Delargy, Hugh
Griffiths, Will (M'chester, Exchange)


Bottomley, Rt. Hn. Arthur
Dell, Edmund
Grimond, Rt. Hn. J.


Bowden, Rt. Hn. H. W. (Leics S.W.)
Dempsey, James
Gunter, Rt. Hn. R. J.


Boyden, James
Diamond, John
Hamilton, James (Bothwell)


Braddock, Mrs. E. M.
Dodds, Norman
Hamilton, William (West Fife)


Bradley, Tom
Doig, Peter
Hamling, William (Woolwich, W.)


Bray, Dr. Jeremy
Donnelly, Desmond
Harper, Joseph


Brown, Rt. Hn. George (Belper)
Driberg, Tom
Harrison, Walter (Wakefield)


Buchan, Norman (Renfrewshire, W.)
Duffy, Dr. A. E. P.
Hazell, Bert


Buchanan, Richard
Dunn, James A.
Henderson, Rt. Hn. Arthur


Butler, Herbert (Hackney, C.)
Dunnett, Jack
Herbison, Rt. Hn. Margaret


Butler, Mrs. Joyce (Wood Green)
English, Michael
Hobden, Dennis (Brighton, k'town)







Holman, Percy
Mahon, Simon (Bootle)
Roberts, Goronwy (Caernarvon)


Horner, John
Mallalieu,J.P.W.(Huddersfield,E.)
Robertson, John (Paisley)


Houghton, Rt. Hn. Douglas
Manuel, Archie
Robinson, Rt. Hn.K. (St. Pancras, N.)


Howarth, Harry (Wellingborough)
Mapp, Charles
Rodgers, William (Stockton)


Howarth, Robert L. (Bolton, E.)
Mason, Roy
Rogers, George (Kensington, N.)


Hughes, Cledwyn (Anglesey)
Mellish, Robert
Rose, Paul B.


Hughes, Emrys (S. Ayrshire)
Mikardo, Ian
Sheldon, Robert


Hughes, Hector (Aberdeen, N.)
Millan, Bruce
Shinwell, Rt. Hn. E.


Hunter, Adam (Dunfermline)
Miller, Dr. M. S.
Shore, Peter (Stepney)


Hunter, A. E. (Feltham)
Milne, Edward (Blyth)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Hynd, H. (Accrington)
Monslow, Walter
Silkin, John (Deptford)


Irvine, A. J. (Edge Hill)
Morris, Alfred (Wythenshawe)
Silverman, Julius (Aston)


Irving, Sydney (Dartford)
Morris, Charles (Openshaw)
Skeffington, Arthur


Jackson, Colin
Mulley,Rt.Hn.Frederick(SheffieldPk)
Slater, Mrs. Harriet (Stoke, N.)


Jay, Rt. Hn Douglas
Murray, Albert
Slater, Joseph (Sedgefield)


Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Neal, Harold
Small, William


Jenkins, Hugh (Putney)
Newens, Stan
Solomons, Henry


Jenkins, Rt. Hn. Roy (Stechford)
Noel-Baker, Francis (Swindon)
Soskice, Rt. Hn. Sir Frank


Johnson, Carol (Lewisham, S.)
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Steel, David (Roxburgh)


Johnson,James(K'ston-on-Hull,W.)
Norwood, Christopher
Stewart, Rt. Hn. Michael


Johnston, Russell (Inverness)
Oakes, Gordon
Stones, William



Ogden, Eric
Summerskill, Hn. Dr. Shirley


Jones, J. Idwal (Wrexham)
O'Malley, Brian
Swain, Thomas


Jones, T. W. (Merioneth)
Oram, Albert E. (E. Ham, S.)
Symonds, J. B.


Kenyon, Clifford
Orme, Stanley
Taylor, Bernard (Mansfield)


Kerr, Mrs. Anne (R'ter &amp; Chatham)
Oswald, Thomas
Thomas, lorwerth (Rhondda, W.)


Kerr, Dr. David (W'worth, Central)
Owen, Will
Thorpe, Jeremy


Lawson, George
Padley, Walter
Tinn, James


Ledger, Ron
Page, Derek (King's Lynn)
Tomney, Frank


Lever, Harold (Cheetham)
Paget, R. T.
Urwin, T. W.


Lewis, Arthur (West Ham, N.)
Palmer, Arthur
Walden, Brian (All Saints)


Lewis, Ron (Carlisle)
Pannell, Rt. Hn. Charles
Walker, Harold (Doncaster)


Lipton, Marcus
Pargiter, G. A.
Wallace, George


Lomas, Kenneth
Park, Trevor (Derbyshire, S E.)
Wells, William (Walsall, N.)


Loughlin, Charles
Parkin, B. T.
Whitlock, William


Lubbock, Eric
Pavitt, Laurence
Wilkins, W. A.


Mabon, Dr. J. Dickson
Pearson, Arthur (Pontypridd)
Willey, Rt. Hn. Frederick


McCann, J.
Peart, Rt. Hn. Fred
Williams, Alan (Swansea, W.)


MacColl, James
Pentland, Norman
Williams, Mrs. Shirley (Hitchin)


MacDermot, Niall
Perry, Ernest G.
Williams, W. T. (Warrington)


McGuire, Michael
Popplewell, Ernest
Willis, George (Edinburgh, E.)


Mclnnes, James
Prentice, R. E.
Wilson, Rt. Hn. Harold (Huyton)


McKay, Mrs. Margaret
Price, J. T. (Westhoughton)
Wilson, William (Coventry, S.)


Mackenzie, Alasdair (Ross&amp;Crom'ty)
Probert, Arthur
Winterbottom, R. E.


Mackenzie, Gregor (Rutherglen)
Pursey, Cmdr. Harry
Woodburn, Rt. Hn. A.


Mackie, George Y. (C'ness &amp; S'land)
Randall, Harry
Woof, Robert


Mackie, John (Enfield, E.)
Rankin, John
Wyatt, Woodrow


McLeavy, Frank
Rees, Merlyn
Zilliacus, K.


MacMillan, Malcolm
Rhodes, Geoffrey



MacPherson, Malcolm
Richard, Ivor
TELLERS FOR THE NOES:


Mahon, Peter (Preston, S.)
Roberts, Albert (Normanton)
Mr. Charles Grey and




Mr. William Howie.

Amendment made: In page 38, line 25, after first "of", insert "or".—[Mr. MacDermot.]

Sir Martin Redmayne: I beg to move Amendment No. 364, in page 39, line 7, at the end to add:

(12) (a) This section applies where an individual carrying on a trade either alone or as a partner personally acting therein—

(i) ceases so to carry on the trade by retiring at the age of 60 years or some greater age, and
(ii) on or in connexion with that retirement disposes before his death of, or of his interest in, assets used, and used only, for the purposes of the trade throughout the period of ownership.

(b) the first £15,000 of the aggregate of gains which accrue to each individual from disposals falling within this section shall not be chargeable gains.
(c) in arriving at that aggregate of gains—

(i) the respective amounts of the gains shall be computed in accordance with the

provisions of this Act (other than this section) fixing the amount of chargeable gains,
(ii) any loss accruing to the individual from a disposal falling within this section shall be deducted, and the provisions of this section shall not affect the computation of the amount of any allowable loss, and
(iii) gains and losses shall be aggregated or deducted although different or separate trades are concerned;
and for the purposes of determining which gains and losses constitute the first £15,000 of the aggregate of gains, the gains and losses shall be taken in the order in which they accrue.

(d) where the aggregate of gains accruing to the individual during his lifetime and so arrived at in respect of all disposals made by him and falling within this section exceeds £10,000, section 23 (2) of this Act shall in relation to that individual have effect as if for the reference therein to £5,000 there were substituted a reference to the amount (if any) by which the excess falls short of £5,000.
(e) if an asset was not used for the purposes of the trade throughout the period of ownership this section shall apply as if a part of


the asset representing its use for the purposes of the trade having regard to the time and extent to which it was, and was not, used for those purposes, were a separate asset which had been wholly used for the purposes of the trade, and this section shall apply in relation to that part subject to any necessary apportionment of consideration for an acquisition or disposal of, or of the interest in, the asset.
(f) this section shall have effect as if section 31(9), except paragraph (a) thereof, were repeated in this section.
(g) section 31(11) shall apply in relation to this section as well as in relation to a claim under subsection (1) or subsection (2) of section 31.
(h) where an individual who is for the purposes of Part IV of this Act a director of a close company carrying on a trade and who is devoting substantially the whole of his time to the service of the company in a managerial or technical capacity—

(i) ceases so to devote substantially the whole of his time by retiring at the age of 60 years or some greater age, and
(ii) on or in connexion with that retirement disposes before his death of any, or his interest in any, shares or securities in that company,
this section shall apply as if the company were a lawful partnership carrying on the trade and the individual were a partner personally acting therein and the other holders of shares or securities in the company were also partners therein and his and their respective shares and securities in the company were respectively interests in its assets, those interests carrying respectively, as nearly as may be, the same rights as those shares and securities.

This Amendment is designed to deal with the disincentive to retirement which now appears to be written into the Bill. Since various things have been said last week from the Treasury benches leading one to believe that perhaps the principle of this Amendment might be accepted I will try to move it as briefly as I can.
As the Bill is drafted it is clear, in the words of the Memorandum of Dissent of the Radcliffe Report, that a man whose economic power is unearned, may have substantial capital gains throughout his old age which he will not realise and liability will then occur on death. It could be argued that given a capital gains tax at all, death is the logical time at which to make an exemption, the amount in the Bill being to the extent of £5,000 of a person's capital gains.
The point of this Amendment is that under the Bill a man who earns his living running his own business has to pay Capital Gains Tax when he retires and disposes of his assets, apart from his

dwelling-house, which is specifically exempted. The greater part of a smaller man's business resources throughout his working life are often tied up in his business so that capital gains which he could have achieved up to the date of retirement must be fully taxed under the Bill at the time of his retirement.
Thereafter, in his declining years, his income and his capital resources are probably at a minimum. His capital has just been diminished by the payment of Capital Gains Tax on retirement and, as he has a short expectation of life, and in comparatively few cases will he be able to achieve any substantial amount of further gain after retirement, Clause 31 as it now stands deprives this man of the benefit of anything like the £5,000 bottom slice which is offered on death by Clause 23(2).
We think that this is illogical. Hitherto, the general attitude of the Income Tax and the Finance Acts suggests that where economic power has been earned it is more deserving of bottom slicing than where it is unearned. For example, for Income Tax there is earned income relief and for Estate Duty a 45 per cent. reduction in respect of plant machinery land and so forth. But, under the Bill, if any trader retires instead of dying in harness, when he would get the advantages set out in the Bill, he is offered the roughest of treatment. He is liable to Capital Gains Tax in full and without any relief on the disposal of his assets. His retirement automatically deprives him of the 45 per cent. reduction in Estate Duty which he would have got had he died in harness. The Capital Gains Tax payable on retirement is not deductible from the Estate Duty as it would have been had he died in harness and he has scant chance of obtaining any benefit from the £5,000 exemption under Clause 23(2) because it is unlikely that his assets will appreciate after he has realised them on retirement.
On the other hand, the trader who hangs on through increasing age and diminishing efficiency, eventually dying in harness is again liable to Capital Gains Tax on the disposal of his business, but he retains the 45 per cent. reduction of Estate Duty on his plant, and so forth. The Capital Gains Tax payable on disposal of his business is deductible from


the Estate Duty valuation and he has on death the full benefit of the £5,000 exemption.
It is perfectly true, as I said last week, that in considering any case of this sort, where the choice is between retirement alive and retirement dead it is death which gives the best bargain. It puts a very heavy penalty on retirement prior to death. Therefore, this Amendment proposes that where business assets are sold on retirement there should be a bottom slice in the same form as the £5,000 on death of, say, £15,000 which would be exempted from tax. Equally, the £5,000 exemption on death as a balancing factor should be reduced by any excess over the £10,000 bottom slice.
It is also proposed that there should be an age limit of 60 or more for retirement. On considering this further I wonder whether one should have an age limit, because retirement may well have to come earlier for a variety of reasons. If a man was prevented from continuing In business by virtue of incapacity or sickness, then exactly the same arguments would apply.
The fact that in agriculture the Capital Gains Tax is chargeable on the disposal of business assets on retirement tends to put the farmer in a more difficult position than those engaged in other trades because, on ceasing farming, he automatically renders himself homeless. The disincentive against retirement is therefore, even stronger in agriculture than elsewhere.
Equally, it will be seen that although the Amendment as drafted relates primarily to a partnership or a man in business on his own account, it is proposed that it should be extended also to the man trading through the medium of a controlled company. By the terms of the Amendment, such a man would be regarded as being in the same position in relation to his company as a partner in respect of his partnership.
This is eminently a reasonable proposition and I shall not go into it in any great detail. The figures we have put in are arguable. Equally, it would be arguable whether the provision should work on a sliding scale so that it might cover private enterprise businesses realising, say, from £25,000 or £30,000 up to about £100,000. It is true that without some

such provision as is outlined in the Amendment, old men—and this was said last week, and it is true—will hang on in business or in farming until death gives to their sons or heirs the relative benefits of death now written into the Bill.
I hope that the Amendment will receive a favourable reception. I would not like to destroy the goodwill we recently failed to insert in the Bill, but I am sure that even the Treasury Bench cannot accept that, in this day and age, they can allow to go on the Statute Book a provision with such a definite disincentive in it.

Mr. MacDermot: I would begin by paying a tribute to the skilful and comprehensive way in which the Amendment has been drafted. Obviously, a great deal of thought and professional skill has gone into drafting that has commanded the admiration of people who are much more expert than I am in attempting such things.
I have already indicated a number of times during our discussions that this Amendment aroused my interest, and my favourable interest. It obviously raises a very helpful point in connection with this tax. It is concerned particularly to help the small businessman who wants to retire at normal retiring age and dispose of his business to provide for retirement, but who might, at that moment, have an unusually high liability to Capital Gains Tax.
Our tax system already provides reliefs in a variety of ways for people who are making provision for retirement. It is open to the man who runs a small business of his own to take out a retirement pension annuity, if he wants to, and so obtain some of those benefits in tax, but I am informed, that this is not what happens in practice; that he not unnaturally tends to plough back into his business what he has earned, looking on that as his provision and his security for old age.
There is, therefore, a reasonable case for saying that a man in that position should have some tax relief. There is also the obvious relation of the possibility of relief of this kind to the relief already in the Bill of the death exemption of £5,000. This carefully thought out Amendment very constructively suggests,


in part, a set-off for this relief against the death exemption. That is an attractive proposal, and one that we should like to consider further.
I hope that the Opposition will not find it necessary to press this Amendment to a Division, because I can give a clear assurance that we are attracted to this proposal and would like to bring forward proposals on these lines. Perhaps I may here indicate the points we have in mind to consider further, by reason of which we would rather not accept the Amendment as it stands.
4.45 p.m.
We think that it might be wise to consider some tapering provision for age. I do not think that we could accept the suggestion that there should be no age requirement, but it might seem a little sharp if there were such a division that on one's birthday a man would be entitled to no exemption at all and then on the next day become entitled to quite a substantial exemption. We might, for a period of, say, five years, have a tapering provision—

Sir M. Redmayne: Earlier than 60 as well as later?

Mr. MacDermot: It could be around 60, or it could be between 60 and 65, which is more normal in considering such provisions.
We should like to consider the cut-off, if this is primarily designed to help the small business man, but that would probably complicate the provision enormously. We should like to consider the scope of the exemption. The hon. and gallant Member for Down, South (Captain Orr) referred to the farmers in Northern Ireland who have the practice of handing over their farms to their sons on retirement, with no money passing. In such a case there would be no sale at all, and the hon. and gallant Member argued a similar case for exemption there. I should like to look at that further.
I should also like to look at the amount. It occurs to me that even with the setoff provision against death exemption, the figure of £15,000 might be thought rather high, and there might be objection if there were too much discrepancy the other way between this figure and the death exemption.
As I say, I should like to look at these points again, but I have already given the Committee an assurance that it is our intention, when we have considered these matters, to bring forward what I would hope would be an acceptable Amendment or Amendments on Report. I therefore trust that what I have said will satisfy the Committee for the time being.

Sir M. Redmayne: The hon. and learned Gentleman has given a very real and reasonable assurance, and without expressing any hope that he will continue in the same vein, I have pleasure in begging to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Charles Fletcher-Cooke: As far as I can see, subsection (6) relates only to fixed assets or machinery. The reference is to
… part of the building and any permanent or semi-permanent structure in the nature of a building…
In my constituency, the process of calico printing requires enormously valuable copper rollers. These are not fixed assets. They can be slotted into different machines, but they are much more valuable than the machines themselves. Immense care is required in fabricating and etching them, but they would not come under the exemption. I am sure that a great many other hon. Members can quote examples of a similar nature from their own constituencies.
It may be said, "You can always take your portable assets with you. The object of the exemption is to give you some relief, because you have to buy other fixed assets and cannot carry your fixed assets round with you, but at any rate you could carry these rollers or other portable assets round with you." That, I suggest, would be a very artificial distinction. From the business point of view it is reasonable to sell a plant, along with such portable assets as the copper rollers for calico printing, lock, stock and barrel, and it would be quite artificial to prevent a man or a firm that wished to do that by disallowing him the exemption on assets that are not fixed.

Mr. Barnett: Even if it were exempt from Capital Gains Tax, it would seem to


be chargeable to Corporation Tax, and would have been previously. Surely it would previously have been liable to Income Tax and Profits Tax and would now be liable to Corporation Tax.

Mr. Fletcher-Cooke: That may be, but so would be a number of fixed assets. I say that these portable assets, which are used in connection with fixed assets and are in many cases more valuable than the fixed assets, should be treated on the same level as the fixed assets. Otherwise, a totally artificial distinction will be introduced in the case of such things as copper rollers, which may mean that the nature of the sale of a business and purchase of another business will be framed in a false way.

Mr. Mark Carlisle: I want briefly to raise one matter in view of what the Financial Secretary said when moving the Government Amendment to Clause 31(3) to increase the period of 12 months to such greater period as the Board of Inland Revenue might allow.
During the debate last Thursday on compensation for farmers whose land was compulsorily acquired, I raised the point that under the legislation dealing with new towns development corporations are encouraged to buy land from farmers in advance, obtaining ownership of the land, and they allow the farmers to continue in possession as tenants for several years until the land is required for development.
The Minister without Portfolio, at that stage, drew attention to the fact that there was a Government Amendment to Clause 31 to add after "twelve months" the words "such further period as the Board might allow." The Financial Secretary this afternoon, in giving examples of the type of cases to which this would apply, referred particularly to the fact that it would apply in cases where the person who had disposed of his assets was able to satisfy the Board that during the 12 months he had done his utmost to obtain new assets, but had been unable to do so.
I hope very much that the Financial Secretary does not intend that the Government Amendment will be limited merely to that type of case. If it is, it

will fail to deal with the point that I raised on the previous Clause because it would fail to cover the man who is encouraged to dispose of his assets in advance of the time when the land is required for the development.
I hope that the Financial Secretary will bear in mind that the Government Amendment should be interpreted far more widely than he suggested. It should be interpreted to cover not only the man who has attempted during the 12 months to acquire new assets, but the man who has been encouraged to dispose of his existing assets several years before the time when he comes to acquire new assets. If the Amendment is to be of advantage to the farmer or landowner in a new town area, it is essential that the Board should be encouraged to interpret the Government Amendment so as to cover that case as well as the one mentioned by the Financial Secretary.

Mr. Donald Box: Before we come to a decision on the Question before us, I must seek from the Financial Secretary a closer definition of the meaning of "trade" in the Clause. This is causing a certain amount of disturbance to management in some parts of the country. The only clue in the Clause is the reference in subsection (9) to "trade", "profession" and "location" having the same meanings as in the Income Tax Act. I have looked up Section 526 of the Income Tax Act, 1952, which refers to trade as including
every trade, manufacture, adventure or concern in the nature of trade".
I only wish that I could feel confident that the reference to trade in this Clause was as wide as that implies.
If I have interpreted subsection (1) of the Clause correctly, the deferred payment of capital gains—what the Americans call the "roll over"—applies only when assets are exchanged by a company of the same type and are used for the same trade. Superficially, this may seem fair, but, in practice, many anomalies and difficulties will arise. For example, it seems to rule out any change of activity or production by a company or an exchange where a subsidiary company may be involved. If that is correct, it is particularly serious for the future of our industry.
We are all aware of the need in many industries, particularly the older industries, for a greater degree of rationalisation and a reduction in the number of units employed in an industry. If we are to meet increased competition when we join the larger markets of the world—I think particularly of Europe—this will become even more essential in future. For example, in certain types of engineering production it is comparatively easy, I understand—provided that the capital is available—to make bigger and better machines which will produce six or seven of one product in the time that it previously took to produce one.
But it does not always follow that the demand increases at the same pace as production. I think most people would agree it would be quite exceptional if it did. The result—after all, this is a natural technological trend—is that where the product was previously made by six manufacturers, in future perhaps only one or two will be required. The sooner managements recognise that the trend is inevitable the better it will be for the economy, and certainly the sooner productivity will increase.
No one pretends that this decision is an easy one. In some cases rationalisation may take place by agreement, but I think that in far more cases rationalisation will be dictated by economic forces. It will be difficult enough to get managements to take this unpalatable and uncomfortable decision in future because it may involve disturbing employees, risking capital and a general upset; but if it involves the penalty of Capital Gains Tax as well, the chance of acceptance will be very slim indeed.
5.0 p.m.
I will offer one example to support my case. Until a year ago a company known as Manganese Bronze produced most of the marine propulsion propellers in this country. The other producer of a more or less similar size was Stoney Platt. These companies got together and considered that there was room for only one of them in the production of this item and decided to rationalise, and the result was that Stoney Platt bought out the propeller interests of Manganese Bronze.
Some time later Manganese Bronze acquired a company known as Villiers Engineers, a company which had been

making a loss and which, I am assured, ought to be making a profit before long. This decision was in the national interest and the interests of the employees and the shareholders of the companies, and it was taken because at the time the transaction took place the two companies were unaffected by Capital Gains Tax.
I ask the Financial Secretary—he must decide this—whether it is good and desirable that this sort of rationalisation should continue in future and whether it would have taken place if Capital Gains Tax had applied at the time. I feel that if managements are to be discouraged from redeploying their resources by the provisions of the Clause it will prove detrimental to modernisation and improved industrial efficiency. What is wanted is, first, an extension of the type of activity envisaged under Clause 31, and, secondly, the abandonment of the idea of a multi-trade company.
In this respect, I understand that the previous Profits Tax legislation had a Clause which meant that all trades in any one company were regarded as the same trade. I confess that since my arrival this afternoon I have not had time to look up the details. However, I am told that under the present Clause a group of chain stores wishing to open a new shop in a new area—one practising identically the same trade as that pursued by the other shops—could find that the Revenue could claim that it was not the same trade because the new shop did not have the same customers. I am sure that this is not the intention of the Chancellor. It is causing a certain amount of confusion. I hope that the Financial Secretary will be able to give some clear detail as to how he defines "trade" under the Clause.

Mr. J. E. B. Hill: I wish to refer to subsection (5), which limits the operation of the Clause. I had tabled an Amendment suggesting my difficulty, but it was not selected. I am concerned about the way in which the words "wholly or partly" may limit the operation of the concession.
In trying to understand the Clause I looked at the White Paper, which says, on page 14:
Subsection (5) withholds relief if the new assets were bought wholly or partly as a speculation.


"Speculation", although it is innoccuous in the dictionary, has become somewhat overloaded with political implications, and I hope that that reference in the White Paper will not make the Revenue hold that the transactions in land which I am about to describe are, as it were, tainted, because most purchasers of real property surely hope that their purchases will increase rather than decrease in value over the years, especially in the case of agricultural land where there may be some possibility, almost certainly in the long term, of development.
Therefore, if the subsection were construed strictly we might find it operating almost as a complete prohibition, because of the phrase "wholly or partly", which could make the concession of very little practical value.
When one moves from the general point to the particular instances which are bound to arise in practice, one comes across this set of circumstances. Suppose a farmer either wants to move to a bigger farm or is forced to search for a bigger farm because compulsory purchase of his farm may require him to move at comparatively short notice. It will undoubtedly be very difficult for him to find a suitable farm.
As we have frequently heard in the debates, the demand for farms is far greater than the supply. It will, therefore, often come about that a farm which would be suitable is being sold in conjunction with other assets. This is especially the case when there is an auction of agricultural property. A suitable farm may be sold with vacant possession, but coupled with it in the auction may be another farm which is let, quantities of accommodation land, houses and cottages and possibly some woodland. The only way in which the would-be purchaser could get his farm would be to purchase the whole lot on the vendor's terms.
It may be essential for such a farmer to divest himself, as soon as may be, of the surplus assets which he does not require in order to continue farming, and which, in many cases, he could not afford, because farmers on moving in these circumstances want to buy as big a farm with vacant possession as they can and do not want to indulge in investment in property or let land which they are not themselves able to use. In practice,

therefore, a farmer will have to sell off the unwanted asset as soon as he can.
The former may be able to do it in the time between contracting to buy the whole estate, if it is an estate, and the conveyance. He may be able to find a sub-purchaser of the parts which he does not want. Frequently, the tenant of the let farm will himself wish to buy if only he has the chance. But if it is held that this is selling part of the new asset and, therefore, does not come within the concession in the Clause, it will largely destroy the value of the Clause to the farming community.
In my Amendment I suggested the use of the word "substantial" instead of the word "partly", and I did this deliberately to avoid a rigid bar which is found in the Clause as it stands and in the hope that the Revenue would consider the circumstances of the transaction as a whole, because the object of a farmer moving, or being forced, out of his old farm is to set up his farming business in a new situation.
I therefore hope that the Chancellor will see this difficulty and allow the same flexibility in these circumstances as he has already suggested about the time factor. If it could be decided as a question of fact whether, taking the transaction as a whole, this is a genuine attempt to continue in business, then it would become an ordinary matter of negotiation and, if necessary, of appeal. I suggest to the Chancellor that that is a better way of enabling the Clause to work effectively and of helping the farming community and other businesses which may face the same circumstances. It would be better to have flexibility than the rigid bar which seems to exist in the Clause as it stands.

5.15 p.m.

Mr. Geoffrey Hirst: The Clause deals with the replacement of business assets, and it refers specifically to assets used
for the purposes of the trade".
These were closely defined as the Bill was printed in subsection (6,1,a). I assume that as a result of Amendments this is now Clause 1A. We did not debate closely the Government's Amendments on this point. It would not have been easy to argue the specific case on the whole range of reclassifying the Clause. Basically, the Amendments along these lines are


intended to be helpful, and are helpful, in removing some of the rigidity which existed before. To that extent I am grateful.
But I am not yet clear how far the Amendments go. The original printing made no sense at all. After amendment it will be slightly more sensible; one will be able to use one's assets for replacement under the new classification. But in the definition it is clearly stated that a building must be
occupied (as well as used) only for the purposes of the trade".
This affects quite a few businesses and certainly affects a business in which I have often declared an interest to the Committee. I refer to the brewers and to licensed houses which are occupied by tied tenants.
Such a house is occupied not by the brewer who is in charge of the business. For various reasons, such as compulsory purchase, the replanning of towns and the modernisation of cities, which we all want to see, brewers frequently dispose of licensed premises and also—a horrible phrase—delicensed sites. The latter are sites which are still in the property of the company but the licence has been either transferred or put into suspense. Nevertheless, the case comes under the same heading.
The brewers use the proceeds of the sale, very wisely, and as the country would wish, for the modernisation of their business. They may use it for putting in more up-to-date and economical plant, or for developing beers of the lighter variety, which we are beginning to export in considerable quantity. At one time the sale of lager was a one-way traffic, but now quite a lot of beer is exported from this country. That has come about through great amalgamations and the availability of finance for that type of modernisation. This must apply to other businesses, too.
I may be wrong in my interpretation, and I shall be delighted to be proved wrong, but I do not see why businesses should be penalised in this way. The relationship is a tied or tenanted relationship and the property is not actually occupied by the brewer. Because of the very close definition in the Bill at present, tenanted houses—which are very substan-

tially part and parcel of the trade—are not brought within the scope of the concession.
I could perhaps make the point even clearer by giving the Committee the benefit of the knowledge—which, no doubt, many of them already have—that managed houses are within the scope of the Clause. Other houses are tied, for quite specific reasons—partly from the need for the great modernisation which has taken place in our public houses, raising the standards remarkably—and millions of pounds have been poured into these licensed houses. Without this tied relationship that would not have been done. I have not given the Financial Secretary any notice, and this is a technical point. If he cannot answer today, perhaps he would write to me. Any comment that he makes will be helpful.
May I raise another point in the same main field though on a wider issue? It is not such a major point in respect of the industry to which I have referred. I refer to the acquisition of a site as defined in subsection (3). It reads:
This section shall only apply if the acquisition of, or of the interest in, the new assets takes place, or an unconditional contract for the acquisition is entered into…
A time factor is given. Assets are often acquired on building leases which at the time of acquisition are not unconditional contracts. Nevertheless, a building contract is entered into. This is a much shorter and a technical point, and again I accept that I am bowling a fast one at the Financial Secretary. If he cannot answer now, I shall be happy if he answers in writing. I hope that he will not overlook the point, which is important and which affects a wide range of industries.

Sir A. V. Harvey: My hon. Friend asks the Financial Secretary to give him an answer in writing. But we should all like the answer to the question. May we be given the answer in Committee and not in correspondence?

Mr. Hirst: Nothing would satisfy me more. I realised, from those who stood up to catch your eye, Dr. King, that I was one of the last speakers to be called in the debate and that this did not give the Financial Secretary much time to get the answer on a technical point. But


possibly someone else will keep the debate going long enough for him to get the answer. That would be better than his writing to me about it, because neither point is entirely parochial. The second point does not have a particularly wide application to the very large industry which I have mentioned, but it is a wide issue and, therefore, is very important.

Mr. MacDermot: I have not followed the second point made by the hon. Member.

Mr. Hirst: Subsection (3) provides that to be included in this advantage there must be an unconditional contract at the time of acquisition. On many occasions there will be acquisition on building leases which are not unconditional contracts, but a building contract is subsequently entered into. The intention is, and is shown to be at the time of the transfer of the assets, that such building will take place, but there is not an unconditional contract in the period of time written into the Bill.
Owing to the unpunctuality of British Railways I was not here when a previous Amendment was discussed, but I assume that the Government were not kind enough to accept an earlier Amendment considerably extending the period of time. Of course, if the Financial Secretary accepted that Amendment, we should be a long way to winning the battle. I spend most of my time in Committee, but at that moment I was absent.

Mr. Peter Walker: They have not accepted the period of time which we suggested, but they have accepted that it shall be at the discretion of the Board of Inland Revenue.

Mr. Hirst: I am not sure whether that is a good answer, and I will wait to hear more.

Mr. David Mitchell: May I put one or two questions before the Financial Secretary replies? In spite of some elucidation from him during the debate, there are one or two points on which I am not clear. We have been told that if a farmer sells an arable farm in order to purchase a pig farm, he does not pay Capital Gains Tax even though the pig farm is in a totally differ-

ent part of the country. Would that apply to a market gardener?
Can the Financial Secretary explain why it is that a pig farmer can sell his pig farm and become a chicken farmer without paying tax, but a sweet shop cannot be changed to a book shop or a grocery shop in the same way? What is so heinous in having built up a business as the owner of a sweet shop or a book shop or as a chemist and then wanting to go into the grocery business in another town? I should like to know what is the principle whereby the Government feel that a man should pay Capital Gains Tax on the work which he has put into building up a business over his life time.
If a business is not being sold and, therefore, no cash is being received from outside, from where is the money supposed to come to pay the Capital Gains Tax? If a man gives the business to his son or his family, from where does the money come to pay the tax? Many farms, many grocer shops, many small businesses in my constituency have been passed on from father to son and father to son for generations. This is the young man's skill. This is what he has learned to do.
It is no good saying that he should pay the Capital Gains Tax, for he has not the money. It is no good saying that the father should pay, for he has not the money, either. The business is not being sold outside the family and no money is coming in. Where is the money to come from to pay the Capital Gains Tax when a business of this sort is passed on in the family as a gift? Where is the money to come from to pay the Treasury?

Mr. James Scott-Hopkins: One of the points which my hon. Friend the Member for Basingstoke (Mr. Mitchell) raised was referred to earlier, and, as I understand—

Mr. MacDermot: May I point out that it does not arise on this Amendment.

Mr. Scott-Hopkins: As I understand, we are not discussing an Amendment. We are on the Question, That the Clause, as amended, stand part of the Bill.

Mr. MacDermot: The question of a farmer who gives his farm to his son does not arise on this Clause.

Mr. Scott-Hopkins: I am sorry that the Financial Secretary saw fit to interrupt me.
I was going on to say that we had had an earlier debate about this matter and that my hon. Friend was right in saying that the Financial Secretary had not been as forthcoming as we had hoped on the point which he raised. When I first came into the Chamber, I was extremely disturbed about the restrictive nature of the Clause, and I was unconvinced that it went wide enough. However, it would be churlish if I did not acknowledge the concessions which the Financial Secretary has given. They will be of value, and we must accept them as such.
My hon. Friend the Member for Shipley (Mr. Hirst) referred to the first concession about the extension of the one-year period. The Financial Secretary said that the Inland Revenue would look at this sympathetically. In my view—and I hope that my hon. Friends agree with me—this is not quite as specific as we should have liked, and I am sure that the Financial Secretary is aware of this. We should have liked a specific period of up to three years within which members of the farming community could look for an alternative farm and reinvest their assets. This must apply to other businesses as well as agriculture.
I hope that the Financial Secretary will pay particular attention to what has been said by my hon. Friends and that he will instruct the Inland Revenue, when the time comes, to be particularly sympathetic about this matter, because I assure him that we feel extremely strongly about it.
I should like clarification of the word "trade". My hon. Friend the Member for Cardiff, North (Mr. Box) asked for a definition of the word. I should like confirmation from the Financial Secretary that it includes horticulture, agriculture and forestry. I assume that it must do so, but I am advised by professional bodies outside that there is some legal doubt about whether it does. I should like the Financial Secretary to clear up this point in a definitive manner.
My hon. Friend the Member for Norfolk, South (Mr. J. E. B. Hill) made a point about subsection (5). I support

everything that he said. I should like to go further and draw the attention of the Financial Secretary to an Amendment which was not called, namely, Amendment No. 365 in the name of my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne), in page 37, line 35, at end insert:
(6) Notwithstanding the provisions of section 26(2) of this Act, where there is a disposal of an asset by way of a gift, and the donor and donee jointly so elect, the donee shall be deemed to have acquired the asset and the donor shall be deemed to have disposed of the asset at the value at which and on the date on which the donor acquired the said asset, and this section shall apply as if the donor and the donee were one and the same person.
This dealt with valuation for the purposes of Capital Gains Tax. Although the Chair did not see fit to call that Amendment, I should like to draw the Financial Secretary's attention to the fact that members of the agricultural community feel very strongly about this matter.
The value at purchase, if there is a sitting tenant, is very different from the value on sale if it is sold with vacant possession. In 1947, by an act of the Government, the tenant was given special security as it could be argued, and it is argued, that the landlord in 1947 was deprived of an asset in land, not through his own fault, but through Government action. Therefore, in cases of land held before 1947, a case can be made out that on disposal of an asset the valuation should be at the same constant level, whether there is a sitting tenant or vacant possession.
I think that the various concessions which have been made, particularly that which the Financial Secretary made concerning the retirement of small men, and indeed large men, after having built up their business, in view of the fact that as things stood it was more advantageous for them to retire, are welcome. They will be of benefit not only to the agricultural community, but to others.

Mr. MacDermot: The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) asked me why the relief was limited to fixed assets, and he mentioned the case of rollers for calico printing. That is a technical point, and I should like to look into it. I think that the general principle underlying the distinction of fixed assets is clear.
The hon. Member for Runcorn (Mr. Carlisle) raised a point about the compulsory purchase of farms and the extension of the 12 months' period. I gave that as an example of the sort of case where there might be a case for extension. The hon. Gentleman referred to the case of a new town corporation which bought land and left the farmer as a tenant, perhaps for a number of years, before he was evicted. The hon. Gentleman said that the time would naturally come when the farmer would want to repurchase.
The intention is that the discretion would be exercised if it was not possible for the businessman concerned—in this case, the farmer—to undertake the replacement of the asset in question within the time limit by using ordinary foresight and prudence. Clearly, if the basis of the acquisition by public authority was that he should continue farming there for some years, it would not be reasonable to expect him to replace that asset while he was still continuing to farm as a tenant farmer. I cannot commit the Revenue in advance about how it exercises its discretion, but, as I understand, this is precisely the sort of case which it would want to look at favourably.

Sir Douglas Glover: It is clear that the Inland Revenue would look at the matter sensibly, from the point of view of the farmer. But suppose that a man running a business was taken ill, and that he was ill for some time and had to sell the business and get a capital profit on selling but had every intention of starting again as soon as he had recovered. Suppose that he was not able to start for two years. Would he have to pay Capital Gains Tax on his first business and, therefore, have less money to reinvest in his new business when he had recovered? This is more important than the question of the farmer who is deprived of land through compulsory purchase.

Mr. MacDermot: I should not go further than state the general principle on which it is contemplated that the Inland Revenue would exercise its discretion. Hon. Members are as capable as I am of applying that principle to particular facts. I do not think that I should commit the Inland Revenue in advance on particular examples which I

have not had time to consider with the care which, obviously, should be given to them.
The hon. Member for Cardiff, North (Mr. Box) asked me two questions. The first was what "trade" meant. We are importing the Income Tax Acts definitions, which are extremely wide. The save very wide definition would apply in Clause 31. The hon. Gentleman went on to ask about the position of the same trade for the operation of these provisions. He referred to the case of a trader who was a multiple trader and carried on several trades simultaneously. That situation is covered by paragraph 6 of the Twelfth Schedule, where is provided that in the case of a multiple trader the several trades are to be treated as one. Therefore, the trader can switch within the trades that he is carrying on.

Mr. J. E. B. Hill: May I raise a rather different point which is important in rural constituencies? There is the case of the village store with a sub-postmastership attached. The store is sold and the owner takes a new store without the sub-postmastership. Will that, or a change the other way, be considered a change to a different business? This is a point of some substance in rural areas, although the scale is small.

5.30 p.m.

Mr. MacDermot: I should think that that, clearly, is carrying on his trade as a storekeeper, and there will be no problem. The particular provision I am talking about is one related to companies, which provides that all the trades carried on or the trades of a group of companies shall be treated as a single trade. It is on page 179 of the Bill.
The hon. Member for Cardiff, North and others asked why it was necessary to confine these roll-over provisions of Clause 31 to the same trade. Why should they not be completely at large? The answer is that, unless one does confine it in this way, it will afford such opportunities for deferment and delay that realisation would almost cease to be an occasion for taxation to capital gains and, when a person is really winding up one business activity, it is reasonable that that should be an occasion of charge.

Mr. Box: I am encouraged by what the hon. and learned Gentleman has said about the definition being drawn widely.
The sort of case I have in mind is this. A company carrying on specialised engineering activities decides to continue no longer one of its subsidiary companies in that line and then goes into some other business, say, the business of printing or of plant hire. Is the hon. and learned Gentleman assuring us that the Revenue will take a lenient or generous view of the definition of "trading"? He can see the difficulties which will arise. I am not thinking of years in between, but of a reasonable period, say, one or two years, but not longer than that.

Mr. MacDermot: Again, I am a little chary of trying to answer on particular examples which I have not had time to study. The general principle is that, if a company or trader is branching out into what is, for him, a new trade, he does not get the advantage of the Clause 31 provisions. If, on the other hand, a company or group of companies has been carrying on a number of trades, those are treated as a single trade. Subject to that, the trader must show that the activities, both the old and the new, are within the same trade as that term has come to be defined and interpreted by the courts in relation to the Income Tax laws.
I was asked about this question particularly in relation to agriculture. As I understand it, for these purposes all branches of agriculture are treated as the same. It would be all forms of farming, including horticulture and forestry. Very wide switching of activities, as it were, will still enjoy the benefit of Clause 31.
The hon. Member for Norfolk, South (Mr. J. E. B. Hill) asked why the expression "wholly or partly" is still used. This appears at line 33 in subsection (5). He had an Amendment down on the point. We are following the wording which was used in the Finance Act, 1962, and we see no reason for making the law more lax here than was done on that occasion. It would be impractical to expect the Revenue to try to adjudge, where a person had bought with the intention of realising a capital gain, whether that was the substantial or only a partial reason for the purchase.
On the particular example the hon. Gentleman gave to illustrate his point, I can, I think, allay his fears. A farmer

whose farm has been compulsorily acquired or who has for one reason or another given up his old farm and who buys a new one may, of course, have to buy a bigger farm with more assets than he wants. He may have no use for some of the assets and sell them off. I do not imagine that it would be difficult for him to persuade the Revenue authorities that that was his purpose in selling them off. It is only when the Revenue can establish that the purpose of his acquiring those assets was in order to realise an immediate quick gain, or, rather, a capital gain on the new assets —I had better not say "an immediate quick gain"—that he will be deprived of the benefit of the Clause.

Mr. J. E. B. Hill: Will the hon. and learned Gentleman accept that, in disposing of the surplus assets, the farmer might get rather more than they were thought to be worth and, to that extent, would cheapen the new asset? I hope that that factor will not vitiate the benefit of the Clause.

Mr. MacDermot: That is the point I was trying to make. The farmer may fortuitously make a modest capital gain in disposing of the assets which he did not require; but that would not deprive him of the benefit of the Clause if it was in that sense incidental to his true purpose, that is, acquiring a new farm to carry on his activities as a farmer. It is only if his motive in making the switch from one farm to another was partly to realise that particular capital gain that he would be deprived of the benefit.
The hon. Member for Shipley (Mr. Hirst) asked me two questions. The first was a rather technical one about a brewer disposing of delicensed sites. The answer to the question is "No"; that situation is not covered by the Bill and would not be within the Clause.

Mr. Hirst: The point about delicensed sites was one element of the question, and a more important element was the question of the tied house occupied by the tenant, not by the brewer. It is more than just a question of delicensed sites.

Mr. MacDermot: If I find that my answer needs qualifying in any way, I shall write to the hon. Gentleman. I think that the answer to his whole question, of which the delicensed site point


was only one element, is, "No, it is not covered".
The hon. Gentleman's second question related to the unconditional contract point, with reference to assets acquired on building leases. I should like to look at that again to see whether it is adequately covered by the Bill.

Mr. A. P. Costain: When the hon. and learned Gentleman is considering that point, will he bear in mind that there may be many cases in which planning consent is held up by local authorities? It would be quite wrong if, for some reason, the person was deprived of the benefit but he was not responsible. It is the expression "unconditional contract" which concerns me most in that context. I want the hon. and learned Gentleman to look at the point very carefully.

Mr. MacDermot: The hon. Gentleman means that the contract might be subject to the condition of obtaining planning permission and, without any fault on the part of the taxpayer himself, it is held up?

Mr. Costain: Mr. Costain indicated assent.

Mr. MacDermot: I think that a case like that would clearly be covered by the new powers which we have now written in to give the Revenue a discretion. It there are particular points in relation to building leases, I should like to look into them.
I was asked, also, about realising vacant possession value. I take the view that that is almost an extreme case of a passively acquired capital gain which is properly the subject of taxation.

Mr. Scott-Hopkins: I brought that matter up in relation to the 1947 Act, when there was a deliberate act on the part of the Government which changed the situation as regards landlord and tenant. That was the only instance in which I raised the matter.

Mr. MacDermot: I am not sure that I have quite taken the point. There are many provisions in the law relating to agriculture and in landlord and tenant law under which there is a statutory limitation on the right to obtain possession. If circumstances change so that

that control goes it will produce a sudden and considerable increase in capital value. I do not see any reason why it should not be taxed. It is well known that there are people—I was going to say many more respectable people than Mr. Rachman—who buy up properties which are tenanted by elderly people, looking forward to the capital gain they will realise when those people cease to occupy it and the protection is lost. So I cannot hold out any hope on that point.

Mr. Eric Lubbock: Will the hon. and learned Gentleman bear in mind the case of the landlord of controlled property which is at an artificially low value because of the control provisions, and who may suddenly make a large capital gain because the tenant dies or leaves so that the landlord gets vacant possession? Is it really fair that he should pay Capital Gains Tax on the full value of the increment as the result of this suddenly happening? Or ought not the dwelling to be valued as at 6th April at the price which it would have been possible to ask had it not been inhabited by a controlled tenant?

Mr. Mitchell: I am grateful to the Minister for what he has said in summing up, but I am afraid he has not answered the two questions I put to him. The first was, why is selling a pig farm and buying a poultry farm all right while selling a chemist's shop and buying a bookshop or a grocer's is all wrong? The second was, when a business is passed on in the family from father to son, where is the cash to come from with which to pay the Capital Gains Tax?

Mr. MacDermot: I did answer the first point, though the hon. Gentleman may not have liked my answer. I have stated the reason why we consider it right to tax the gain when a person is selling up one business. The second question does not arise on this Clause, and that is why I did not answer it.

Mr. Lubbock: The hon. and learned Gentleman shook his head in answer to an intervention of mine a few moments ago, and so I must press this point. I quite appreciate that he says that there is every reason why a landlord who has acquired a property with a controlled tenant in it, in every expectation of getting a quick capital gain, should be made to


pay 30 per cent. tax, but I am not thinking of that kind of case at all. I may tell the hon. and learned Gentleman of a particular example which I have in mind. A constituent of mine lived in a property in another part of London until 1935 and then moved into Orpington. He let his property at a controlled rental of £1 2s. 6d. a week. Since that date the rental has risen to something like £1 7s. 6d. only. I understand that the net rental is brought down to 16s. 10d. taking into account his expenses on repairs and removals. Therefore, he has had virtually no income from this property for some time. Its actual value with vacant possession—

Mr. MacDermot: I am sorry to interrupt the hon. Gentleman, and that I did not answer any more than by shaking my head, but I think he is under a misconception. He is not made immediately subject to tax. He is made subject to tax only when he disposes of the asset. When he disposes of the asset with vacant possession he has money in hand with which to pay the tax. There could be a perfectly passive—I was going to say in some cases massive—capital gain.

5.45 p.m.

Mr. Lubbock: There could be a quite considerable loss. At the time when my constituent let his property in 1935 perhaps £1 2s. 6d. was quite a reasonable market price. I think from what he has told me that his expenses were only about 2s. 6d. in those days, so that he was in fact receiving a net rent of £1 a week, and £1 a week was worth considerably more then than it is now, but the value of his property has been depressed by reason of the fact that it is controlled. He is receiving only 16s. 10d. a week taking into account the repairs and renewals. What the hon. and learned Gentleman is now saying is that it is quite fair for him to have to pay Capital Gains Tax, if the tenant dies, on the whole amount of the difference between the price at 6th April, with the controlled tenant in the property, and the vacant possession price.
I am saying it is inequitable and that some consideration ought to be given to the fact that this landlord has been letting the house at an artificially low price ever since the beginning of the war. The hon. and learned Gentleman ought to

be a little more forthcoming on this, and should give some discretion to the Inland Revenue, so that it can discriminate against landlords such as Mr. Rachman who acquire property in the expectation of being able to get somebody out, and perhaps using unorthodox and undesirable means to do so, and a person like my constituent who performs a valuable social service for many years in making high-class property available and keeping it in good repair but whom the hon. and learned Gentleman now penalises by making him pay Capital Gains Tax on the value which he has not in fact realised but which was always there as soon as he could get vacant possession. I think that, on reflection, the hon. and learned Gentleman will agree that this is most unfair.

Mr. James Ramsden: I should like very briefly to ask the hon. and learned Gentleman to look again at the point made by my hon. Friend the Member for Shipley (Mr. Hirst) in connection with the licensed trade. I used to work in this trade, and I can assure the hon. and learned Gentleman that every word my hon. Friend said is correct. We have at the moment, as I understand it, the position where a licensed house, when it is managed, gets the benefit of the operation of this Clause, but when it is tenanted it falls outside the scope of the Clause, simply because under the law the house which is tenanted is technically occupied not by the brewery but by the tenant. So we have two indistinguishable assets, one of which is included, one of which is not. I hope that the hon. and learned Gentleman will look at this point, because otherwise the only effect will be that all houses will become managed houses and not tenanted, and that, from no point of view, would be a desirable development.

Mr. Harold Lever: I want to make one short point. I hope my hon. and learned Friend will acquit me of any discourtesy, but I did not hear the whole of his speech because although I was on the premises I had to be about other duties. If he has dealt with this point already I hope he will stop me straight away. I am concerned with this question of realising one set of assets and investing the money in another. I wonder if my hon. and learned Friend would look at this matter again. I know that


it presents certain difficulties, but in subsection (3), where it says
an unconditional contract for the acquisition is entered into, not later than twelve months after the disposal…
I wonder whether we could insert some such words as
or such other period as the Commissioners may allow upon the application within the period of twelve months".
I think this would be the justice of the case. Would it not—

Mr. MacDermot: My hon. Friend suggested that if I had dealt with the point I could interrupt him. I would draw his attention to Amendment No. 431, which I moved and the Committee accepted.

Mr. Lever: I am very happy not to press my hon. and learned Friend further. It seems to me to meet the justice of the case.

Mr. Peter Walker: I do not want to detain the Committee any longer on this Clause. Many points have been raised which the Financial Secretary has said he will look into before Report. That illustrates how right we were when we suggested originally that companies should be excluded altogether.
However, there are just two points to which I should ask the hon. and learned Gentleman to give particular attention, and one is that put by my hon. Friend the Member for Cornwall, North (Mr. Scott-Hopkins). I recognise the argument that if somebody has purchased a tenanted property and it becomes vacant and he makes a capital gain, it is fair to tax him, but the case made by the hon. Member for Orpington (Mr. Lubbock) was different. If two people bought similar houses in 1935, and one let his house furnished and it never came under control, and the other let his unfurnished and it therefore came under control—and the same applies to agricultural properties under the 1947 Act—as a result of Government action one man's property will have been depressed in value during the period it was under control. If those two people obtained the possession of their properties in 1966, the one who had let it furnished would pay a much lower Capital Gains Tax than the one who had let his property

unfurnished. Surely that is wrong and worthy of examination to see whether something can be done about it.
My hon. Friend the Member for Ormskirk (Sir D. Glover) made an important point about a person being ill. This is particularly apt in a small business. If the proprietor is taken ill and he decides to dispose of his business, will any provision be made for him should he decide to enter a similar business after his illness? I recognise that because a man is ill it is not possible to defer the payment of the Capital Gains Tax, but I hope that if after his illness he decides to go into a similar business the Revenue will consider giving him a rebate of tax.
That consideration should apply whether it is the man himself who goes sick and gives up his business, or he gives it up because of the illness of his wife or a dependent relative. If, at a subsequent date, he is able to go back into the business, if the goodwill is taxed he will have paid a 30 per cent. tax and will have suffered to that extent.
There have been some Amendments to the Clause, and it has thereby been improved. The Financial Secretary has promised to look at other matters and we expect that on Report the Clause will be considerably altered. In the hope that that will be so, I suggest that we should now accept it.

Mr. Hirst: Before we pass the Clause, which is no doubt desired, I must ask the Financial Secretary to pay some attention to the arguments which I have advanced. He must not merely say that he will look into this matter. We will not make progress if all that he and other Ministers say in answer to a detailed argument on a specific point is that the section of business in question is not included. I referred to the licensed trade and tied houses.

Mr. MacDermot: I thought that that was the only question which the hon. Gentleman asked. I thought that he asked only whether that was included, and I answered that it was not. He did not suggest that if it was not the law should be altered, and I have not heard arguments from other hon. Members that it should be. Nor has anyone said that this would lead to all tenanted houses becoming managed houses.
There is a great difference between a tenanted house and a managed house from the point of view of the brewer and the business of the brewer. But if the hon. Gentleman and his hon. Friends have further arguments to advance on this matter, and they would like me to consider them, I shall do so. I believe that it is the wish of the Committee to make further progress on these matters today, and I suggest that if there are some new points which have not been covered by the Amendments it is a little unfair on the Committee to take up too much time on them when we have reached a conclusion on many matters on which hon. Members have tabled Amendments.

Mr. Hirst: That is rather a travesty of the facts. I do not propose to make my speech over again. It is in HANSARD, and the hon. and learned Gentleman can read it there.
I drew a distinction between the two sections of the licensed trade, and said that brewers' tied houses should not be penalised in this way. I knew that they were not included. I do not need the hon. and learned Gentleman to give me facts of that character. I prepare those before I come to this Committee. I do so in great detail, and I know what I am talking about on this subject. I know that they are not included. That is why I raised the point about them being penalised. I know that the hon. and learned Gentleman carries a lot of "can" on that bench. I ask him not to accuse someone of not having made a point because he does not go over it six times.
When a brewery is carrying on its business of selling beer, it uses various avenues to sell. One is the use of managed houses, in which case the man there is the employee of the brewery. The other case is the more beneficial one because it adds to the individual character of our English public houses and gives that freedom which is widely enjoyed in the management thereof. These are the tenanted houses. I know that they are not included. I have had this argument before in other contexts, on other legislation, to which I must not refer.
I do not want to be told that they are not included. I want to know why they are not included. Technically I know

the answer, but bearing in mind that they are the ordinary normal way of doing business they are surely the same. If a brewery loses some of its licensed sites because of the redevelopment of cities, and obtains the money by way of compensation, if it is in respect of a managed house it can devote the money to the modernisation of its buildings. If, on the other hand, it is a tied house it cannot so renovate without paying a fine. I want to get that point clear, otherwise we shall have to come back to this on Report. I already have a long list of points to raise then, and we shall make little progress.
I do not expect answers to everything at once. Perhaps I was rather too magnanimous. I was challenged for being a little kind to the hon. and learned Gentleman, and I found it rather disconcerting. I appreciate that it is not possible to answer everything on the spot. I accept that there was not an Amendment down to deal with this point, but I was waiting for clarification of the Clause which I hoped would cover this point. I have since learned that it does not, so I am back to square one—and so is the Minister.

Mr. J. E. B. Hill: I was disappointed with the hon. and learned Gentleman's answer about agricultural land values. Comparing the value of land without vacant possession with the value of land with vacant possession is not comparing like with like. Surely it will follow from the hon. and learned Gentleman's answer that if an owner of land in possession chooses to let it, which he will be free to do, at the next disposition, or notional disposition, presumably he or his successors will be able to claim a capital loss. I should have thought that that was undesirable and that it was far better to compare like with like.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 32.—(EXEMPTION FOR CHARITIES AND OTHER MISCELLANEOUS EXEMPTIONS.)

The Minister without Portfolio (Sir Eric Fletcher): I beg to move Amendment No. 436, in page 39, line 8, at the beginning to insert:
Subject to subsection (2) of this section".

The Temporary Chairman (Sir Herbert Butcher): I think that it might be convenient to discuss also Amendment No. 437.

Sir Eric Fletcher: I agree, Sir Herbert. It is the Amendment of substance. These Amendments are designed to prevent a possible avoidance of Capital Gains Tax by the use of time charities. The Clause exempts charities from Capital Gains Tax, and the exemption is intended to apply to charities pure and simple, in other words, permanent charities. Where a charity was set up in such a way that the income was payable for charitable objects only for a limited time, and then the capital would revert to the settlor, it would be improper for such a charity to obtain permanent exemption.
Therefore the Amendment seeks to provide that those gains which arise on the assets and which are spent for charitable purposes will be exempt, but if they are merely accumulated and, at the end of the day, are distributed to persons who are not exempted as charities, the advantage of that provision will be withdrawn.

6.0 p.m.

Sir Henry d'Avigdor-Goldsmid: I do not think that anyone will quarrel with this addition to the Bill. There is one matter, however, that I want to have clarified. In the last part of Amendment No. 437 there is reference to the making of assessments
at any time not more than three years after the end of the year of assessment
and so on. This seems to me to be adding unnecessary delay and confusion. I agree that the trust would be assessable for Capital Gains Tax on the change of beneficial owner, but what is the purpose of delaying the assessment, or giving the Inland Revenue power to delay it, for three years? I cannot believe that the suggestion is that the original valuation may have been incorrect. This seems to be simply a case of giving the Inland Revenue a free option. Perhaps the hon. Gentleman can state why this period has been included.

Sir Eric Fletcher: If the hon. Member understood the object of this part of the Clause he would know that it is not intended that there should be any delay in the assessment. But there may

be circumstances in which it is not possible for the Inland Revenue to make an assessment within three years. We are dealing here with the case where a trust provides partially for charitable benefits, which come to an end in circumstances in which the capital reverts to the settlor or to some other individual who is not exempt. In those circumstances, when the availability of income for charitable purposes ceases and there is a reversion, it is right that the trustees should be liable to Capital Gains Tax on the capital improvement of the corpus of the trust.
It may be that the facts would not become known in time to enable the Inland Revenue to make an assessment within three years. It is intended that the assessment should be made as soon as possible, but it is obviously desirable that the period of time in which an assessment should be made in this case should be three years.

Sir H. d'Avigdor-Goldsmid: I do not understand what the hon. Member means by "if the facts were not known". We are speaking of a valuation which must be carried out by law, and for which the trustees are responsible. This is something to which they have put their names. I do not understand why the facts should not be known in such a context. It is for the trustees to produce the valuation and for the Inland Revenue to accept or challenge it. It is not for the Inland Revenue to delay for three years.

Sir Eric Fletcher: There is no intention to delay. The subsection merely provides that the assessment shall be made
not more than three years after the year of assessment.

Amendment agreed to.

Mr. Peter Walker: I beg to move Amendment No. 242, in page 39, line 10, at the end to insert:
(1A) A charity holding shares in an investment trust to which section 34 of this Act applies shall be entitled to be repaid the amount of the tax charged on the investment trust in any accounting period which—

(a) has been deducted in computing the total net gains of the trust in that period; and
(b) is attributable to the amount of the total net gains apportioned under section 63 of this Act to the shareholding of the charity.

The Temporary Chairman: I think that it will be convenient if, with this Amendment the Commitee discusses Amendment No. 243, in page 40, line 3, at end add:
(3) Where a fund being either such a fund as is referred to in subsection (1) of this section or a fund the income of which is exempt from tax under any of the enactments mentioned in subsection (2) thereof holds shares in an investment trust to which section 34 of this Act applies the provisions of subsection (1A) of section 32 of this Act shall apply to that shareholding as they apply to the shareholding of a charity in such an investment trust:
Provided that if part only of such a fund as is referred to in the said subsection (1) has been approved the entitlement to repayment shall be restricted to such proportion of the amount of the tax as corresponds to the proportion of the chargeable gain that would be exempt under subsection (1) of this section.

Mr. Walker: Yes, Sir Herbert. Hon. Members on both sides of the Committee agree that charities and superannuation funds should not be subject to Capital Gains Tax. That is why my hon. Friends and I have tabled these Amendments, presuming that this is yet another tentative Clause and that the Government really mean to uphold the principle that charities should not pay Capital Gains Tax.
At the moment, any charity which invests in an investment trust or a unit trust—and many charities do so—would be subject to Capital Gains Tax on all the capital gains which accrue from the investment trust or unit trust. Those gains would be taxed at the rate of 35 per cent. A small charity may decide that it does not have the necessary "know-how" to handle its investment funds, and may therefore put its investments into a certain investment trust, where they will enjoy professional management and a spread of investments. Under the terms of the Bill the investment trust would pay 35 per cent. tax on any capital gains taking place within the trust.
Under another Clause, however, the charity would presumably have credited to it and set off against any realisation the amount of Capital Gains Tax paid. But the charity never becomes subject to Capital Gains Tax. We therefore have the position in which it will be allowed this amount, in terms of setting off any

capital gains it makes, but will never benefit because it will never be charged on its capital gains. The Amendment therefore provides that the amount of tax charged on the investment trust during the relevant period shall be paid in money to the charity concerned. To any person who wishes charities to be exempt from this provision the Amendment will appear to be reasonable and right.
Amendment No. 243 involves some more complicated considerations. It applies particularly to superannuation funds. Only some superannuation funds are affected by the Clause. Basically, they are those funds which come under the terms of Section 379 of the 1952 Income Tax Act. Some very important funds come partially under that Section, and those funds will benefit to some extent from the provisions of the Clause—but only to the extent that those funds are invested under that Section.
This will give rise to considerable difficulties. What happens if one of these funds which is partially affected by that Section has unrealised gains as a result of providing for the reserve in its superannuation fund? Although this may be more suitable for discussion on the Question, "That the Clause stand part of the Bill", I mention it now because it is probably more convenient for the Chief Secretary to deal with the matter in its entirety.
In the case that I have put forward the fund would be making certain capital gains which would not be covered by the Clause, and this would presumably require a potential reserve to be held against them. The fund would be in a quandary about what it was able to pay out in terms of benefits, and whether benefits paid out would be subject to future capital assessments. Therefore, there is a real difficulty.
There is also the effect that if members are transferred to another superannuation fund, and the securities are transferred from one to another which is not covered by the provisions of Section 379, there would be a realisation, and Capital Gains Tax would be paid. If it were paid by the fund which the members were leaving, that would be unfair to the remaining members. If, on the other hand, it is paid off in cash, there would have been a


realisation, and Capital Gains Tax would have been paid, and that would be unfair. As it is worded at present, Clause 33 will create considerable administrative difficulty regarding those funds not completely covered by Section 379.
The effect of the Amendment, which is similar to that relating to charities, is to see that any tax paid by an investment trust is repaid in respect of the investments of the superannuation funds. As at present worded, the Amendment does not include unit trusts, but if the principle is accepted, I hope that the Chief Secretary will, on Report, enable unit trusts to be included as well as investment trusts. There is a good precedent for this proposal. Superannuation funds obtain a rebate of tax on investment income at the present time and I think that exactly the same principle would apply.
When I say that about 10 million in this country are members of non-insured superannuation funds it will be realised that this is of considerable importance. Many of the funds invest heavily in investment trusts and unit trusts. A classic example is the Local Authority Mutual Investment Trust, with an investment of £40 million which is at present concerned primarily with the superannuation funds of local authorities. The present wording of Clause 33 would mean that trusts would be subject to Capital Gains Tax at the rate of 35 per cent. which in turn would affect all the local government superannuation funds invested through the trusts. There is also the Pension Equity Unit Trust which has £2· million of investments covering a substantial number of superannuation and pension funds. There are in all 171, of which 148 are covered under Section 379, but the remaining 23 are not. These are two illustrations of the unit trusts and investment trusts specifically designed to assist in the investment of superannuation funds.
If the Amendments are accepted, it would mean that smaller superannuation funds and charities unable to employ the requisite professional investment management would be able to continue to have their investments serviced by the administration of the major investment funds in the country. If the principle is allowed, unit trusts and investment trusts would probably be created specifically designed

to look after superannuation funds and charities. That would ease the administrative problem for the Revenue. In that the two Amendments fit the spirit of the Clauses concerned I hope that they will prove acceptable.

The Chief Secretary to the Treasury (Mr. John Diamond): The hon. Member for Worcester (Mr. Peter Walker) was right in saying that a charity is a charity, be it for Income Tax purposes or Capital Gains Tax purposes. If, therefore, an investment trust or a unit trust were—as one is—a charity, it would not be subject to Capital Gains Tax. That is the correct transposition of the Income Tax law to the realms of Capital Gains Tax. The hon. Member wishes to go further. Let me say straight away that we would like to see whether we can help in some way, and to consider this matter between now and Report stage, but I do not think, for reasons which I shall adduce, that it would be possible to go as far as the Opposition would wish.
6.15 p.m.
It must be appreciated that there is a distinction to be drawn between the individual and the company. A unit trust or investment trust is a company and as such is liable to the taxation on a company. Advantages to be obtained by an individual by investing through a unit trust or an investment trust are not disputed. There are the advantages of expert management and of wide spreading. These are advantages of investing through the medium of a company called a unit trust or an investment trust. This has advantages for the individual. It has certain disadvantages so far as Capital Gains Tax is concerned. It has the disadvantage that if the investor were a charity and invested directly, it would not be subject to tax on income drawn from those investments. If it chose to effect an alternative form, for which advantages are claimed, as the law now stands it could not obtain the same beneficial treatment; that is to say it could not go so far as reclaiming the Capital Gains Tax paid by the trust in respect of the charity's holding in the trust, but I repeat that a unit trust which is a charity does not attract Capital Gains Tax.

Mr. Peter Walker: I am not certain what the Chief Secretary means. Does he mean that, if a group of unit trust managers start a unit trust for the sole purpose of administering the funds of charities, that is a charity? Or does he mean that the unit trust itself is in some way a charity?

Mr. Diamond: I mean the second, but I am coming to the first. The charity would require more. It would include the second but would require more than that. It would require to be of such kind and purpose as to satisfy the Inland Review in a strict way that it was a charity. I am told that one such exists. There is nothing to prevent a unit trust being established which is a charity. In saying that, I grant that I am offering no concession because already under the provisions of the Bill a charity is not assessable, and therefore any group of charities which wished to combine and invest through the medium of an investment or a unit trust, which was itself a charity, would not need any easement from me. They are already exempt because a charity is already exempt under the Bill.
What I am considering, and what we want to see, is whether it is possible in some respects to meet the spirit of this Amendment; whether if charities did combine together to form an investment trust, which was not itself a charity but the whole of whose members were charities, and whose membership was exclusively open to charities, we could provide special regulations so that that trust could provide the kind of exemption asked for in the Amendment. But I must make it clear that we cannot accept the Amendment put forward. I do not think that it would be possible, for these reasons. I repeat, a company and its shareholders are two separate things. What is being asked for in these Amendments—[An HON. MEMBER: "The same gramophone record."]—I am sorry about the gramophone, but some hon. Gentlemen opposite have not yet got the tune off by heart. I hope that by now they have, and that I need not repeat it—[Interruption.] This is fundamental to the whole of the Bill; if it is not accepted, we do not leave square one. If we cannot agree about it, and it is not accepted, then it is just not accepted, but it is

fundamental to the whole Bill. This would, perhaps, explain the different approaches to it.
For example, if what the Opposition are asking were granted, it would be sought for more than charities. It would be sought, for example, for a man paying the two-thirds rate instead of the full rate, and for the man who is not liable at all. We have that problem. The same might apply to the question which the hon. Member for Worcester asked me about superannuation funds. Some of those funds are in respect of approved schemes exclusively and others are not because they include more than approved scheme objects. It might be possible for the first category—I do not know—to group together to form an investment trust or unit trust, the members of which would be exclusively trustees of approved pension funds. If that were so, it might be possible to deal with the problem in that way.
I should like, therefore, to have the opportunity of looking at these possibilities between now and Report and considering the difficulties. Having regard to the basic principle which was observed in devising the Corporation Tax, I regret to say that, as put forward in the Amendments, the proposals are not acceptable.

Mr. Raymond Gower: The Chief Secretary will probably recognise that there must be some disappointment in the minds of some of us on this side of the Committee. Anyone who reads the first part of Clause 32 as it stands would have the impression that the Government, in effect, intend that a gain shall not be subject as a chargeable gain if it accrues to a charity. The Chief Secretary is saying that it shall be subject if it accrues to a charity which has invested in an investment trust. In other words, although the principle—

Mr. Diamond: To be quite clear, nobody is saying that with regard to the investment made by the charity itself, that is to say, in the unit trust or in the share in the investment trust. I am saying that that part of the Capital Gains Tax is suffered by an investment trust or a unit trust, and which is, in a sense, applicable to the charity's holding, is not a proper subject for a claim for a repayment of tax by the charity.

Mr. Gower: I think that the Chief Secretary is playing with words. I still submit that what, in essence, his reply means is that, in future, those who are responsible for the administration of charities will invest in investment trusts subject only to this new penal proposition that that proportion which they put into an investment trust or, by corollary, into a unit trust, will attract a penal duty which it has not attracted in the past. To that extent, this is a blow to the choice and selectivity of those who administer the affairs of these great charities and, indeed, of those funds designed to ensure the maintenance of pensions, which are described in the other Amendment dealing with superannuation funds.
In my submission, it is proper that those who administer these funds should have the utmost discretion and that their experience and judgment should not be limited in this way. In this narrow respect, I submit to the Chief Secretary, he is limiting their choice in the future. He is saying that they can do this only subject to this new penal provision. I submit also that this is completely at variance with the spirit and purport of the main Clauses in both cases. I deeply regret that the Chief Secretary should take this attitude.
This is also a blow at the investment trust and unit trust movement. It is a deplorable blow and one which those of us who deem this movement of great value and importance will deeply regret. I must declare an interest, as I am a director of one unit trust which is established and one which is to be established, as well as of an investment trust. I do not think that that lessens the objectivity with which I make this plea to the Chief Secretary. The value of these bodies has been so established in recent years that it seems to be common knowledge that we should do everything which we can to sustain them. I deeply regret that the Chief Secretary has taken this narrow point of view, using very restricted technical words to thwart the aim clearly stated by my hon. Friend the Member for Worcester (Mr. Peter Walker) in his admirable opening speech.

Mr. Harold Lever: I am sorry to interrupt the Niagara of crocodile tears which is flowing from the other side of the Committee on the subject of

charities. We have by now become accustomed to the Opposition in their cloth-cap rôle as defenders of the marginal hill farmer. We are now seeing them in the rôle of anomaly chasers on behalf of charities. I hope that I shall be treated as being reasonably impartial on this subject, because I do not like the Capital Gains Tax and I have said so. Wherever I have seen anything wrong with it, I have said so with complete freedom, both here and outside.
I do not question the sincerity of hon. Members opposite, but they have been talking more unadulterated balderdash than I have ever heard concentrated into a few minutes. To suggest that the Chief Secretary or the Chancellor should give further concessions along the lines of the Amendment is so amazing and so intellectually contemptible that I do not know how anybody has the effrontery to put it forward.
Let us pause and reflect. I am starting from the proposition that there is no taxation which is fiscally perfect. I realise now why the Government like tax upon death, why they like Capital Gains Tax to be levied on the estate when the owner has gone to receive the only perfect justice—fiscally and in other respects—which he is ever likely to know. Accordingly, I can see that this reaching-out for perfect justice compels the Government to tax upon death. If one does not expect absolutely perfect justice, one has to have some reason in one's taxation.
What the Opposition say is, "Here is a capital gain which is earned by a company in which a charity has invested. Since the charity does not pay the Capital Gains Tax, the reasonable, commonsense, big-hearted thing to do is to give a charity back the Capital Gains Tax paid by the company". The ridiculousness of this proposition can be seen by contrasting it, not with the preaching of the Conservative Party when in opposition, but with the activities of the Conservative Party when in government, when they had some sort of modest responsibility for keeping their demands within reason.

6.30 p.m.

Mr. Peter Walker: In fact, we do not say that in the Amendments at all. If


we had said what the hon. Gentleman is suggesting we have said, we would have proposed that tax on any capital gains which took place within the company should be related. We have not said that tax on capital gains in the company should be rebated, but that when a charity uses managers, operating under the name of an investment trust which invests in companies, there should not be double taxation, and earlier the hon. Gentleman was against the principle of double taxation.

Mr. Lever: It is not a question of double taxation. I shall hope to be corrected if I am wrong, but what the Opposition are seeking to do is to get the Government to concede that a charity shall be rebated tax which a taxable body has paid on its own behalf merely because the charity happens to have invested in or through the medium of that organisation.

Mr. Peter Walker: Mr. Peter Walker indicated dissent.

Mr. Lever: The hon. Gentleman shakes his head. I will yield to him and allow him to correct me and tell me what the purpose of the Amendment is, if it is not that.

Mr. Peter Walker: If a charity invests in I.C.I. and I.C.I. makes some capital gains, then we are not asking that that should be rebated, which is what the hon. Gentleman is talking about. We are saying that if the charity through an investment trust invests in I.C.I., as I.C.I. will have already paid 35 per cent. of its capital gain, the charity, or separate fund, should not be forced to pay a further 35 per cent. on the appreciation within the investment trust.

Mr. Lever: What the hon. Gentleman is seeking to do is precisely what I have described, namely, having invested in the shares of a taxable body, namely, an investment trust—whether an investment trust should or should not be subject to Capital Gains Tax is another matter—once the investment trust has paid Capital Gains Tax, because I, a charity, hold shares, I should be paid back the tax. It is argued that the Revenue is supposed to go to the point of saying that the common sense is that as the charity owns shares in the trust and is itself not a taxable individual and, as it is the policy

of the law to allow the charity to go scot free, the reasonable thing is that the Revenue should pay back a proportion of the Capital Gains Tax paid by the investment trust in which I, the charity, have invested, an investment trust which is itself a taxable body and not owned exclusively by charities but also by other persons.
That will surely not stand up to any rational argument. My hon. Friend the Chief Secretary has already pointed out that there is no better claim on the part of a charity to have money back than on the part of a shareholder who is exempt from tax, and nobody has suggested that.
To show the difference which occurs to me between a company and a charity in this way, let me point out that when the Conservative Party was in office charities enjoyed some relief, not Capital Gains Tax, but from Income Tax, the analogy I want to make. A company in which a charity had invested might earn £100,000 and pay £55,000 in tax and a very small dividend. The charity could reclaim the tax on the dividend paid, but it could not reclaim the company tax because the company and the charity were two separate bodies. The policy of the law was, is and for some time has been, that the charity should not be taxed itself.
Taking a simple case of Income Tax under the existing law and the old law, a charity would be able to reclaim the tax on its dividends from the company in which it had invested, but was in no way related to and could not claim back the tax which the company paid on its trading profits. By analogy, no charity could expect to be given back the tax which had been paid by way of Capital Gains Tax on the company's capital profit any more than anybody has had the courage to suggest that charities should recover the Income Tax which companies have paid on their own behalf in respect of their trading profits.

Mr. Diamond: My hon. Friend is quite right and I am sure that he intended to go on to develop the point that when the tax is Profits Tax, as opposed to Income Tax, on the trading profits, there is no question of redemption.

Mr. Lever: The Chief Secretary has rightly anticipated me. The whole purpose of the Corporation Tax, to which the


Capital Gains Tax is allied, was to have a scheme of taxation coming in—and, perfect or imperfect, it is a scheme of things and has a logic which cannot be broken up—and the logic was to produce a situation similar to that with the Corporation Tax which existed before and by which when a charity had shares in a company which paid Coroporation Tax, nobody said that the Government were being skinflint with charities because they did not allow charities to reclaim Corporation Tax.

Mr. Diamond: Profits Tax.

Mr. Lever: It was a form of Corporation Tax. The reason was very simple and it was precisely what my hon. Friend the Chief Secretary said, namely, the division of personalities for this purpose between the company and its shareholder, the charity. The charity could reclaim any tax which it had suffered, but never reclaim as if the company were its agent.
With respect, it is no good the hon. Member for Worcester (Mr. Peter Walker) blustering around the question and talking of charities investing through an investment trust. They do not invest through an investment trust, over an investment trust, or on an investment trust, but in an investment trust. They buy shares in an investment trust and when that investment trust pays tax, that is nothing to do with the charities. A charity receives back only what tax it pays itself. It cannot be honestly demanded that charities should be given relief in the anomalous way suggested.
A word is justified when considering the Amendment on the general treatment of charities by the Government, both in Capital Gains Tax and the Corporation Tax. One might have felt some sympathy with the Amendments to help charities if the Government had in some way reneged from the general position relating to charities. I am bound to say that the present law is exceedingly generous to charities, because it makes all of us, the whole body of taxpayers, partners in the generosity of anybody who gives to what is called a charity. Thus, the man who passionately believes that one should play games on Sundays pays part of his Income Tax because someone else has covenanted large sums to the Lord's Day Observance Society.
This seems to be a somewhat anomalous position which would bear consideration. I can go on with other amusing examples. The most extraordinary charitable objects are being financed by tax relief by the general body of taxpayers, objects often representing about 0·0001 per cent. of the wishes of the general body of the taxpayers who are providing so large a part of this charity. For example, Moslems provide funds for research into pig eating. Sports players finance aid to the Lord's Day Observance Society. Jews finance Catholic redemption and Wesleyan Methodists finance all sorts of joyous activities of which they would not at all approve.
I admire the generosity and breadth of mind of the Chancellor of the Exchequer in taking the opportunity, even with this general reform of the taxation system, not to disturb the privileges which charities already have. These privileges are great enough and ought not to be enlarged. It should not be forgotten that every concession made to one taxpayer represents a burden on another.
In these circumstances, my hon. Friend the Chief Secretary has made a very generous offer, namely, to consider that if a charity wishes neither directly nor indirectly to suffer this tax, all it should have to do is to get a group of like-minded charities to form an investment trust, with no shareholders other than charities, to provide the skilled investment assistance for investing their money, and the concession may then be practicable. I am not sure that that promise is not too generous, having regard to the present situation and the principles which I have enunciated.

Mr. Geoffrey Lloyd: I rise unabashed as an intellectual contemptible to put one practical point to the Chief Secretary. I ought to say that I am an investment trust director and an investor in investment trusts. On my way to the practical point, I would like to put to the Chief Secretary, although not in any way a trained accountant, a point slightly different from that mentioned by his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever). In the course of castigating my hon. Friends, I thought quite wrongly, for putting this point of view in favour of chastity—

Mr. Harold Lever: The castigation would have been much more severe in that case.

Mr. Lloyd: He emphasised the almost antiseptic difference between the personality of the company, on the one hand, and the personality of the charity or any taxpayer or investor in an investment trust, on the other. He said that it would, therefore, be a gross transgression on the essential logic of symmetry of the whole Bill if there were any blurring of this line.
I thought that the Government had already proposed that there should be a method by which the individual shareholder should have some rebatement of the capital gain which was made inside the investment company, in his character as an individual investor. I agree that many of us think that this is not a very good system, but that is not the point on this occasion. The Government have already transgressed what has been held up to be this sacred principle. Therefore, it is not unreasonable for us to take the view that they should go the whole way in dealing with a charity.
I do not wish to argue this transcendental point of tax principle, but to make a practical point. The Chief Secretary said, in a moment of wishing to make an intellectual concession to the Committee, that a charity could become an investment trust. I believe that he said that one was a unit trust. That might be an important point for big charities, but, in practice, I know, as an investment trust director, that there are many pension funds which invest in investment trusts.
The practical point I wish to put is that the problem does not arise in regard to the pension funds of, say, I.C.I. or Imperial Tobacco but that it is a difficult problem for the relatively small pension superannuation funds approved by the Revenue. I have in mind the pension fund of a small company which is run by, say, the secretary of the company who does not have very large sums at his disposal. In such a case investment trusts provide an ideal investment, for the money gets spread in a way that the secretary of such a company would not have the knowledge to spread them.
I do not wish to exaggerate the case, but if the position the Government are

taking up means that they are making it less advantageous for a pension fund to invest in an investment trust than directly in industrial or financial shares—

Mr. Harold Lever: Before the right hon. Gentleman proceeds, is that not commonplace in this sort of taxation? For example, a charity might think that the most appropriate kind of investment was in a property company rather than directly in a property. Is the right hon. Gentleman suggesting that in encouraging a charity so to do, and not narrowing the field of its investment, it should be allowed to reclaim the Corporation Tax?

Mr. Lloyd: I am putting a purely practical point. If one looks at the whole range of medium and small sized companies one finds that they choose investment trusts, like small pension funds, for the practical reason that a good spread of investment and expert management is achieved. I am urging the Government to look at this practical point instead of merely giving us continual lectures in taxation theology.

Sir H. d'Avigdor-Goldsmid: In supporting the Amendment I wish, briefly, to make it clear that this is a case where the Government Front Bench, aided and abetted by the hon. Member for Manchester, Cheetham (Mr. Harold Lever), have simply muddled the issue. The issue is indeed a simple one; namely, that under Clause 34(1) a rebate is allowed to the individual investor in an investment trust or unit trust in respect of the capital gains paid by the trust.
As I understand it—and as the hon. Member for Cheetham clearly does not understand it—the object of the Amendment is to put a charity, relative to the ordinary investor, in exactly the same position whether the investment is in an investment trust or in I.C.I. The argument of the hon. Member for Cheetham falls to the ground because, no doubt, in his anxiety to cover the existing position, he did not have time to read Clause 34, although he will have plenty of time to tell us all about that.
6.45 p.m.
The Government have, for reasons which we all approve, made this exemption for charities. Thus, the object of the


Clause is to maintain the position applying to charities, as the Government have accepted it, but in this case the charity is being differentiated against as compared with the ordinary investor. I believe that I see the Chief Secretary shaking his head in disagreement. If I cannot make the position clear to him now, perhaps I will have an opportunity of trying again later. I assure him that this is a relatively simple matter. I cannot understand why the Government cannot accept the Amendment. If they do not do so they are certainly being perverse.
When I say that it is the intention of the Government to bedevil the professional managements of investments I do not expect them to admit it. Indeed, they may not realise that that is what they are doing, but certainly that will be a by-product of the Bill. If the Clause goes through unamended it will mean that no charity will want to hold shares in an investment trust. A disincentive of this type is not something that can be remedied overnight and without there being a massive disturbance of the market. Up till now charities have invested largely in investment trusts, for the reasons adduced by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd). Why should charities now be condemned to changing their investments and why should they be differentiated against in this way? Considering the simple point that is involved, it is regrettable that the Government have shown so little interest in it.

Mr. J. T. Price: If Amendment No. 243 means what it says, I do not think that it can be logically defended. My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) who, as we know, is a master of hyperbole, and gentle raillery pointed out the logical flaws in it.
I should, perhaps, declare an interest, though not a personal one, in that I have been for many years a trustee of a large pension fund approved under Section 32 of the Finance Act, 1921. The history of the pension fund movement is an important social matter which we should consider. Since the original Chanter was granted in the 1921 Act, it has been the social policy of Governments in this country to encourage the pension fund movement for the simple and sound reason that where special pro-

vision has been made for groups of workers, executives and others who are employed, central funds are to that extent relieved later on.
In giving further consideration, as the Chief Secretary has promised, I urge him to bear in mind that because of the changing pattern of the financial world, particularly in the last 10 to 20 years, a large number of pension fund trustees who, under legislation, were originally restricted to trustee investments and who could not invest their funds in general equities—and this applies to the fund with which I have been associated—have been forced to amend the deeds of their funds in such a way as to widen the scope of investment open to them. They have done so for very sound reasons—because of the inflationary spiral which is now a permanent feature of our society. It has been held philosophically and soundly by people whose duty it is to manage these affairs that pension funds must be geared to inflation if inflation is the order of the day.
It would help a great deal if it could be made quite clear from the Treasury Bench that it is not the intention of the Government in any way to undermine the privileges or concessions that have been available to pension funds. There may be an impression abroad, going out from this House, that the Government are doing something in some way detrimental to the existing pension funds. [Interruption.] Please allow me to put my point of view which I put as sincerely as hon. Members opposite have put theirs, not from any theoretical point of view but from a practical knowledge of affairs. I should like the assurance that it is not the intention of the Government to depart from the general exclusion from all liability for tax now enjoyed by pension funds.
There remains the doubt that, because of this change of taxation, we may get the further oblivation placed upon trustees of funds to begin a massive switch of investments because they are not so favourable as they were before. That would be a retrograde step for any Government to take.

Mr. Heath: Two important differences of view have emerged during the debate. The first was very clearly stated by the


Chief Secretary when he said that a company and its shareholders were two entirely separate entities. This is the depressing thing about the whole of our debates on the Bill. There is this clear division between the two sides of the Committee.
We do not accept that there is an absolutely clear dividing line between a company and its shareholders. We could perhaps bear with the Chief Secretary if it were not for the fact that he and his colleagues have breached the principle themselves. What is more they are doing it with investment and unit trusts under the next Clause but one. It becomes all the more difficult to bear this repeated lecture about the clear distinction between the nature of a company and its shareholders. I foresee immense difficulties for us when we come to discuss the Corporation Tax if the Chief Secretary tries to maintain his position on this inviolate dyke which has already been breached.
In the debates we had on the nature of an investment trust or a unit trust the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) held the view that this is the same sort of body as a manufacturing or trading company and that all companies were exactly the same. This is not a view we hold. We believe there is a difference between a normal manufacturing trading company and the investment trust or unit trust which is concerned with the investment of small shareholders and also institutions dealing with pension funds, superannuation funds, and so on. It is because the hon. Member for Cheetham is treating these different bodies as being exactly the same that he is unable to understand the points that we are making.
I believe the hon. Gentleman the Member for Westhoughton (Mr. J. T. Price), who spoke before him, will, in fact, find that the argument of the hon. Gentleman the Member for Cheetham is not a logical one and that the result will be that the bodies with which he is concerned, superannuation and pension funds, will suffer as a result of this, and will find that they will need to reinvest their funds differently because of the Chief Secretary's action in refusing to accept the Amendment.
We regard investment or unit trusts as a means whereby those who are not able to pay for their own advice on their investments can invest wisely through an investment or a unit trust. It is not the same as putting one's money into securities of a manufacturing or trading company of the normal kind. Unless the hon. Member for Cheetham accepts this there will always be a difference of view about it and it is the one thing in the Bill, so far, which will enable him to vote in the Government Lobby, in the same way as he has expressed his view.

Mr. Harold Lever: I want to tell hon. Members opposite that they are entitled to as much good-natured fun as they can get out of the fact that I am a devoted supporter of the Government with, from time to time, the obligation of criticising them. But I never have occasion to castigate their chastity, as has been alleged against me by the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd). On the other hand, I hope that they will believe me by now that what I have said on the Bill has been said with honest conviction, although I may be guilty of being rather slow in perception of the complex points being raised. My hon. Friend the Member—

Mr. Heath: I had only given way to an intervention, not to a speech.

Mr. Lever: I thought that the right hon. Gentleman had finished.

Mr. Heath: No, I was only extending a courtesy to the hon. Gentleman for having commented on his speech.

Mr. Lever: The right hon. Gentleman has the satisfaction of knowing that while I have cut his speech in half I have also cut my own in half.

Mr. Heath: Long ago in this Committee we gave the hon. Gentleman a special dispensation that his vote need not follow his voice.
Having illustrated the two differences which have emerged in this discussion the Committee will recognise that while I am not easily shocked, particularly after these last seven days and two nights. I have been shocked by the reply the Chief Secretary has given to the Amendment. The reasons he gave for rejecting charities are not justified in any way at


all. He said that if charities were to be exempted it would give a reason for others, such as those who were not paying any taxation to claim that they ought to have a rebate. Charities have long been treated separately and the fact that they do not pay Income Tax has never been undermined by the fact that some other people do not pay Income Tax either, because they are not liable for taxation. That is the sort of parallel the Chief Secretary was trying to make with a Capital Gains Tax.
On the question of double taxation, the next Amendment demonstrates such a case on the hon. Member for Cheetham's own definition. Here capital gains are paid by normal companies in whom the investment trust invests. The investment trust itself then has to pay capital gains. This is the clearest kind of double taxation. It is to this which we object and we say that charities ought to be able to have the refund on this degree of double taxation as far as the Capital Gains Tax is concerned. We are not prepared to allow it to be confused with the much wider issues.
As the hon. Member for Cheetham recognised with the broad grin with which he spoke his last two sentences, the Chief Secretary has undermined his case by his own proposal that charities should get together and organise their own investment trust, in which case they will be exempted from Capital Gains Tax—

7.0 p.m.

Mr. Diamond: They are exempt.

Mr. Heath: Yes, under this Clause, but he has given away his whole case when, in addition to giving away the principle, he is prepared to urge that the existing arrangements for investment trusts and unit trusts should be damaged—and in some cases broken up—by the withdrawal of the charities and the superannuation and pension funds in order to create their own individual unit trusts and investments trusts.
That is what the hon. Gentleman suggested, but if they do that what does the Treasury gain from it, as against what our Amendment proposes? Nothing at all. What is the point? It is that the existing organisation of investment by charity in investment and unit trusts will be broken up. Therefore, if we adopt his proposal, the Treasury gains nothing.

All that happens is that the existing and, I think, criticism-free organisation of investment and unit trusts are damaged, mutilated, mauled, changed.
On grounds of principle, we disagree with the Chief Secretary, and on grounds of practice I cannot see the slightest justification for his proposal. Can the hon. Gentleman not be big enough to say, "I have now given away the principle by my own proposal", as the hon. Member for Cheetham recognised at the end of his speech? Is it not pointless to say to charities and superannuation and pension funds, "You must withdraw from your existing investment trust and form your own, and then you will not have to pay Capital Gains Tax, if you like to go to all that trouble"? I cannot see the least justification for adopting the hon. Gentleman's principle, and in view of any lack of justification for that principle, and of the Chief Secretary's damaging suggestion, I hope that my right hon. and hon. Friends will take the matter to a Division.

Mr. Harold Lever: As I have been attacked as to my argument, I should like to make a brief reply. I would, first, tell my hon. Friend the Member for Westhoughton (Mr. J. T. Price) that I share his passionate conviction that we should do all we can to help workers' pension funds, and the like. No one wishes to detract from that. My hon. Friend must not think that, these matters being technical and being debated on a technical and supposedly transcendental level—as was suggested by the hon. Member opposite—it shows some sort of heartlessness on the part of those who try to clarify these matters—

Mr. J. T. Price: But my hon. Friend must not suppose that I am half as naïve as he thinks I am.

Mr. Lever: I have known my hon. Friend for getting on for 20 years, and I should not have supposed him to be naive at all. I merely urge him not to be misled into supposing that those of us who make out a technical case are thereby lacking in warmth of heart for those things that he so passionately and cogently supports.
The right hon. Member for Bexley (Mr. Heath) and the hon. Baronet the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) say that since a shareholder


gets a certificate of rebate for Capital Gains Tax which may be of use to him one day, charities or pension funds are being badly treated if they do not immediately get the cash amount on the certificate that the private shareholder gets. That appears to me to be a somewhat odd argument. Let us, first, take it in logic, and then take it in the warmhearted, practical manner of my hon. Friend the Member for Westhoughton.
It does not seem logically convincing to say that, because someone who might be liable to be taxed again gets a certificate relieving him of that liability, it should be done in the other case. The practicality is that a shareholder who gets his certificate may find that it is not worth the paper it is printed on. That would be the case if no capital gain was realised. If the electors were foolish enough at some future point when the economy is getting to its feet—as it will under this Government, after the dreadful condition in which the party opposite handed it to us—if, following a barrage of demagogic propaganda, the electors were to return the Tories to power, we might very well get a slide in share prices, and the man would have his certificate for rebate of Capital Gains Tax which he would never be liable to pay. The certificate would not be worth a penny.
The same reason applies to the charity. The private citizen gets a rebate certificate. No one complains that he has been unjustly treated if he is never called on to pay Capital Gains Tax. So, for the same reason, no one can claim that a charity has been unjustly treated if it does not get a certificate and is not called upon to pay the tax. Therefore, I again suggest that my hon. Friend the Chief Secretary might gratify any charitable impulses that genuinely exist on the other side, as opposed to novelties that may be demagogically exploited, by giving the charities the same certificate as the private citizen—

Mr. Heath: Would the hon. Gentleman agree that the difference is that the charities are themselves exempt by the Clause from paying Capital Gains Tax even when the gain is there? What we say is that in their case the tax has been paid on their behalf through the invest-

ment trust, so, as it has been paid, it should be returned to them.

Mr. Lever: That is a misconception on the right hon. Gentleman's part. He supposes that the Government, by giving this relief against double taxation, have conceded the point that a company has paid Capital Gains Tax on behalf of its shareholders but, if that were so, one would never get to the point where the trust would pay on behalf of the shareholder and the shareholder not get relief. The shareholder gets a certificate, which he can produce, against paying the tax, but that is not saying, "Because the company has paid on his behalf, we will rebate the Capital Gains Tax".
What the Government say is that it would be harsh and oppressive in such circumstances not to give some relief, but the form of relief is not repayment of the company's payment of tax, because the Government do not recognise that it has been paid in that way. The Government say, "It would be harsh and oppressive if we did not give you some relief, and the particular relief is that you will get a certificate entitling you to set off the amount that the company pays in certain circumstances." The circumstances are that the Government say, in popular language, "It would be unfair that you should pay Capital Gains Tax again." But as the charity is automatically not called on to pay Capital Gains Tax, again, there is no such anomaly that requires the remedy that the Government give to the private shareholder.
To move to the practicalities of the matter, I have already pointed out that the same principle applies to relief on Corporation Tax. No one gives a relief to a charity or pension fund on Corporation Tax paid by a company—

Mr. Grimond: I rise only to ask for information. The hon. Member refers to Corporation Tax, but I think that he is talking of Profits Tax. Does any investment trust ever pay Profits Tax as such?

Mr. Lever: Yes, depending on what income the trust received. If it received franked investment income, and only franked investment income, it would not pay any Profits Tax, but many investment trusts received income that was not franked, and did pay Profits Tax.

Mr. Grimond: They pay Profits Tax presumably because the sources from which they received dividends have not done so. In fact investment trusts did not pay Profits Tax on their own, so to speak.

Mr. Lever: The right hon. Gentleman is wrong. The investment trust was liable to pay Profits Tax just as any other company was—no more, and no less. When it invested in gilt-edged securities and got an income from them, the trust would pay Profits Tax on that income just as any other company would, and if a charity held shares in that investment trust it could not get that tax back. We had no appealing whines from the other side on behalf of charities, we were not told that we were demolishing all investment funds and restricting rights, when the other side was in power. Why did they not press these pleas when there was a Conservative Government in power, and not start making them in the middle of a financial crisis, as we now are in? It would have been one small redeeming feature in the 13 wasted years if the right hon. Gentleman could have said that he had done this.

Mr. Lubbock: What the hon. Gentleman has said in relation to investment trusts is a slight simplification. They were allowed to offset management and other administrative expenses against unfranked investment income.

Mr. Lever: They will still be able to do that. The situation has not altered.
The principle is that Profits Tax was payable by investment trusts. The charity which saw fit to invest in an investment trust instead of buying gilt-edged securities itself would have to pay the Corporation Tax indirectly. Nobody will give it any certificate or rebate. The Corporation Tax or the Capital Gains Tax must be paid by the company. No rebate is given. It must be recorded sadly that right hon. and hon. Gentlemen opposite thought that it should be. A period in opposition is a splendid thing for the Conservative Party, for it develops its sense of justice.
It has been said that the Government are brutally and unkindly showing a general indifference to the welfare of the

nation in general and to pension funds and charities, in particular, by restricting the scope of their investment. Hon. Gentlemen opposite should grow up about taxation matters. They should understand that when radical taxation changes occur they will impose on the private citizen and the trustee of the charitable trust all sorts of reconsiderations of their style of investment.
This is inevitable under any scheme of taxation. Under the new Corporation Tax scheme which is about to be imposed a company which holds property will pay 40 per cent. Corporation Tax. No one has tabled an Amendment suggesting that a charity which holds that company's shares should have a rebate for the proportion of the Corporation Tax paid by the company. Yet it could be argued that if the charity directly owned the property, no Corporation Tax would be payable, no Income Tax, and no tax at all because the charity would be exempt.
The answer must be that in the changed circumstances of a modernised taxation system charities, too, cannot be exempted from the need to look about, to be advised, and to come to a conclusion—pension funds, too—about how they may invest their funds. These days many pension funds and charities hold property company shares. It will quickly become obvious to their advisers that the desirable thing to do will be to sell those shares and buy property to that extent. That will be much to their advantage.
It lies ill in the mouths of hon. Members opposite to speak about business incentives and the like in regard to charities and pension funds and not call upon them to use any initiative or take any wise advice for the purpose of guiding their investment. This is a spurious argument and without logical foundation. Right hon. and hon. Gentlemen opposite will merely cover themselves with a certain amount of disgrace if they vote for so unprincipled an Amendment.

Mr. Geoffrey Lloyd: The debate is taking a rather serious turn from the point of view of charities and investment trusts. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) told us in one moment of frankness that when revolutionary changes in taxation are proposed—[Interruption.]—I think that they have been properly described


as revolutionary changes. "Revolutionary" is my word, in addition to the hon. Gentleman's "radical". The hon. Gentleman said that when such changes are proposed many people, including trustees, must consider their position, and, if necessary, change their attitude to investment.

Mr. Harold Lever: I said that they must change their attitude to particular investments and select those which are most advantageous for them to hold. I made that abundantly clear.

Mr. Lloyd: That is exactly what I meant to say, and I do not think that I said anything very different.
We are pointing out that in the circumstances of this Clause charities and, particularly, pension funds—I particularly raise the question of the pension funds of the smaller companies—will have to face very considerable changes in their position. What are the changes? The Government have admitted our point that in future it will be less advantageous for a charity or pension fund, from the point of view of the tax, to invest in an investment trust than to invest directly in investment companies.
The Chief Secretary began to see that there was a seriousness in the position, and he gave what he thought was a way out, which was that the charities and pensions funds could form unit or investment trusts of their own. Does he realise what he has done by saying this on behalf of the Government? He must face the fact that as a matter of practical business, which the hon. Member for Cheetham slightly derided for a moment, pension funds and charities are very largely invested in investment trusts, and since it has been said here that it is no longer advantageous for them to invest in that manner unless the Clause is amended as we suggest, and it has been proposed by the Government that they have the alternative choice of forming unit or investment trusts of their own, we have the position that large sums of money are being invited to leave the investment trusts and to be put into totally new organisations, inexperienced in the art of investment, in order to gain protection against the mischief which will be imposed by this Clause.
This can lead to considerable disturbance of the security markets If it does, the responsibility is on the Government. I would only ask the Chief Secretary to consider the matter more closely. After all, what the Government are doing—and what they seem to think does not matter—is to disrupt a successful method of investment which is used beneficially by charities and pension funds all over the country, by means of which the money flows properly into investment trusts and is put to the best purpose. The Chief Secretary is really inviting a kind of convulsion in the security markets.

7.15 p.m.

Mr. Diamond: I hope that I may be forgiven if I say a few words in response to what the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) has said. He indicated that it would be the view of the Government that they should discourage in some way investment in investment and unit trusts. This is not the case. I have not said anything of the kind that the right hon. Gentleman imputed to me. I said, and I repeat, that it is claimed, and I accept, that there are advantages for certain investors to invest in unit and investment trusts, and I listed two major advantages. One is expert management. I do not withdraw from that notwithstanding the great number of hon. Members opposite who have disclosed an interest as being investment and unit trust managers.
The second is the spread of investment. It is implicit in that that this would be of greater benefit to the small investor, the small pension fund, and the small charity than to the large one which could have its own spread of investment by virtue of its size. I have made that absolutely clear. It is, therefore, a matter for the individual to assess and to weigh up whether it is better to continue investing in these ways and to get these advantages and to suffer the disadvantage which has been suffered in the past of paying Profits Tax. They have been prepared to do that, so there must have been some advantages in it which would outweigh all the other disadvantages.
As to whether they want to carry on doing that or whether in appropriate cases it would be more worth while to


do something different, I am not suggesting that anybody should do anything different at all. I merely say that I have listened to the debate very carefully, and if it emerged that there were possible ways of assisting of the kind that I have indicated I should be very glad to consider them to see whether we could facilitate those concerned by further provisions. As anyone who has gone into the question of pension funds will know, because there are those which are wholly approved and those which are, to use shorthand, mixed, there are great difficulties which could not be overcome without the assistance of the Government in legislative form. Therefore, if it were the wish of the Committee that some kind of solution should be found on those lines, I would be glad to consider the matter and, if possible, introduce on Report an appropriate Amendment to enable that to be done.

Mr. Peter Walker: What the Chief Secretary has said is that there are advantages from the point of view of the smaller charity or superannuation fund in using the investment trust medium to invest its money and that in that way it gets a spread of the risk. He stated rightly that this does not apply to the bigger superannuation fund and charity because it can invest direct for itself. What the hon. Gentleman is saying by not accepting our Amendment is that the capital gains which the bigger fund makes on each of 50 securities will not be taxed, but those who use the investment trust medium because that is where they can get the spread of 50 securities will be taxed.

Mr. Diamond: I am saying what the previous Government did—[interruption.]—and continued and what has been satisfactory to right hon. and hon. Gentlemen opposite hitherto. It was under that regime that the investment and unit trusts grew. I am only saying that, having regard to the disadvantages—we need not go into the reasons why they inevitably existed, and why the previous Government could not remove them—the investing public, including charities

and pension funds, thought that there were outweighing advantages—

Mr. Peter Walker: This is not so if the Chief Secretary is taking the argument of the Profits Tax. When Profits Tax was taken in the underlying company it was not taxed again. But where Capital Gains Tax is taken in the underlying company it is taxed again.

Mr. Diamond: The hon. Gentleman is now going back one stage further. I am talking only about Profits Tax paid by the investment trust. It could have been paid 25 times, because the investment trust could have had shares in an ordinary company which paid Profits Tax on which the investment trust got no relief, and that company could have had a portfolio investment in another company which had paid Profits Tax. It could have gone on many times. This is accepted throughout our system.
I was trying to indicate the methods by which the Government would be prepared to help if that kind of help was thought to be useful. Hon. Members opposite have not attempted to deal with the difficulties in the argument which I illustrated. Let me make it quite clear, because I do not want there to be any misapprehension about it. The right hon. Gentleman's speech was based on his belief that a unit or invesment trust is virtually the agent of the individual investor. What he said was that the investment trust did it on behalf of the investor. We do not go as far as that.

Mr. Gower: In his balancing, the Chief Secretary has said that unit and investment trusts have the advantage of experienced management and spread. That has been his other factor. I would remind him that they have enjoyed those great advantages for years, but from now on there will be a new factor. As a result of his refusal to accept the Amendment they will be in a disadvantageous position vis-à-vis other kinds of investment. To that extent, his attitude tonight is prejudicing the position of these trusts and limiting the choice of those who manage great pension funds and charities. He has made no answer to this point.

Question put, That those words be there inserted:—

The Committee divided: Ayes 184, Noes 187.

Division No.153.]
AYES
[7.25 p.m.


Agnew, Commander Sir Peter
Grant-Ferris, R.
Mills, Peter (Torrington)


Alison, Michael (Barkston Ash)
Grieve, Percy
Miscampbell, Norman


Allan, Robert (Paddington, S.)
Griffiths, Peter (Smethwick)
Mitchell, David


Allason, James (Hemel Hempstead)
Grimond, Rt. Hn. J.
Monro, Hector


Anstruther-Gray, Rt. Hn. Sir W.
Gurden, Harold
Morgan, W. G.


Atkins, Humphrey
Hall, John (Wycombe)
Morrison, Charles (Devizes)


Baker, W. H. K.
Hall-Davis, A. G. F.
Mott-Radclyffe, Sir Charles


Barber, Rt. Hn. Anthony
Harris, Frederic (Croydon, N.W.)
Munro-Lucas-Tooth, Sir Hugh


Barlow, Sir John
Harris, Reader (Heston)
Noble, Rt. Hn. Michael


Batsford, Brian
Harrison, Brian (Maldon)
Nugent, Rt. Hn. Sir Richard


Bennett, Sir Frederic (Torquay)
Harrison, Col. Sir Harwood (Eye)
Osborn, John (Hallam)


Bennett, Dr. Reginald (Gos &amp; Fhm)
Harvey, Sir Arthur Vere (Macclesf'd)
Osborne, Sir Cyril (Louth)


Berkeley, Humphry
Harvey, John (Walthamstow, E.)
Page, John (Harrow, W.)


Berry, Hn. Anthony
Hastings, Stephen
Page, R. Graham (Crosby)


Bessell, Peter
Hawkins, Paul
Pitt, Dame Edith


Biffen, John
Heald, Rt. Hn. Sir Lionel
Powell, Rt. Hn. J. Enoch


Birch, Rt. Hn. Nigel
Heath, Rt. Hn. Edward
Price, David (Eastleigh)


Black, Sir Cyril
Hendry, Forbes
Quennell, Miss J. M.


Box, Donald
Higgins, Terence L.
Ramsden, Rt. Hn. James


Boyd-Carpenter, Rt. Hn. J.
Hill, J. E. B. (S. Norfolk)
Rawlinson, Rt. Hn. Sir Peter


Boyle, Rt. Hn. Sir Edward
Hirst, Geoffrey
Redmayne, Rt. Hn. Sir Martin


Brinton, Sir Tatton
Hobson, Rt. Hn. Sir John
Ridsdale, Jullan


Brown, Sir Edward (Bath)
Hogg, Rt. Hn. Quintin
Roots, William


Bryan, Paul
Hooson, H. E.
Russell, Sir Ronald


Bullus, Sir Eric
Hopkins, Alan
Sharples, Richard


Burden, F. A.
Hordern, Peter
Sinclair, Sir George


Buxton, Ronald
Howard, Hn. G. R. (St. Ives)
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Campbell, Gordon
Hunt, John (Bromley)
Smyth, Rt. Hn. Brig. Sir John


Carlisle, Mark
Hutchison, Michael Clark
Spearman, Sir Alexander


Carr, Rt. Hn. Robert
Irvine, Bryant Godman (Rye)
Stainton, Keith


Cary, Sir Robert
Jenkin, Patrick (Woodford)
Steel, David (Roxburgh)


Chataway, Christopher
Johnson Smith, G. (East Grinstead)
Stodart, Anthony


Cole, Norman
Johnston, Russell (Inverness)
Studholme, Sir Henry


Cooke, Robert
Jopling, Michael
Talbot, John E.


Cooper-Key, Sir Neill
Kaberry, Sir Donald
Taylor, Sir Charles (Eastbourne)


Courtney, Cdr. Anthony
Kimball, Marcus
Taylor, Edward M. (G'gow,Cathcart)


Craddock, Sir Beresford (Spelthorne)
King, Evelyn (Dorset, S.)
Taylor, Frank (Moss Side)


Crosthwaite-Eyre, Col. Sir Oliver
Kirk, Peter
Teeling, Sir William


Cunningham, Sir Knox
Lagden, Godfrey
Temple, John M.


Curran, Charles
Lambton, Viscount
Thatcher, Mrs. Margaret


Dalkeith, Earl of
Lancaster, Col. C. G.
Thomas, Sir Leslie (Canterbury)


Davies, Dr. Wyndham (Perry Barr)
Langford-Holt, Sir John
Thomas, Rt. Hn. Peter (Conway)


d'Avigdor-Goldsmid, Sir Henry
Legge-Bourke Sir Harry
Thompson, Sir Richard (Croydon,S.)


Dean, Paul
Lewis, Kenneth (Rutland)
Tilney, John (Wavertree)


Deedes, Rt. Hn. W. F.
Litchfield, Capt. John
Turton, Rt. Hn. R. H.


Digby, Simon Wingfield
Lloyd, Ian (P'tsm'th, Langstone)
Tweedsmuir, Lady


Doughty, Charles
Longbottom, Charles
van Straubenzee, W. R.


Elliot, Capt. Walter (Carshalton)
Longden, Gilbert
Walder, David (High Peak)


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Loveys, Walter H.
Walker, Peter (Worcester)


Eyre, Reginald
Lubbock, Eric
Walker-Smith, Rt. Hn. Sir Derek


Farr, John
Lucas, Sir Jocelyn
Ward, Dame Irene


Fell, Anthony
McAdden, Sir Stephen
Weatherill, Bernard


Fletcher-Cooke, Charles (Darwen)
MacArthur, Ian
Whitelaw, William


Fraser, Ian (Plymouth, Sutton)
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Williams, Sir Rolf Dudley (Exeter)


Gammans, Lady
Mackie, George V. (C'ness &amp; S'land)
Wills, Sir Gerald (Bridgwater)


Gardner, Edward
McLaren, Martin
Wilson, Geoffrey (Truro)


Gibson-Watt, David
Maclean, Sir Fitzroy
Woodhouse, Hon. Christopher


Gilmour, Ian (Norfolk, Central)
Macleod, Rt. Hn. Iain
Wylie, N. R.


Glover, Sir Douglas
Marten, Neil



Goodhart, Philip
Maude, Angus
TELLERS FOR THE AYES:


Goodhew, Victor
Mawby, Ray
Mr. Francis Pym and


Gower, Raymond
Maxwell-Hyslop, R. J.
Mr. Jasper More.


Grant, Anthony
Meyer, Sir Anthony





NOES


Allaun, Frank (Salford, E.)
Boardman, H.
Callaghan, Rt. Hn. James


Alldritt, Walter
Bottomley, Rt. Hn. Arthur
Carmichael, Neil


Allen, Scholefield (Crewe)
Bowden, Rt. Hn. H. W. (Leics S.W.)
Carter-Jones, Lewis


Armstrong, Ernest
Boyden, James
Castle, Rt. Hn. Barbara


Atkinson, Norman
Braddock, Mrs. E. M.
Coleman, Donald


Bagier, Gordon A. T.
Bradley, Tom
Corbet, Mrs. Freda


Barnett, Joel
Bray, Dr. Jeremy
Cousins, Rt. Hn. Frank


Baxter, William
Brown, Hugh D. (Glasgow, Provan)
Craddock, George (Bradford, S.)


Beaney, Alan
Buchan, Norman (Renfrewshire, W.)
Cronin, John


Benn, Rt. Hn. Anthony Wedgwood
Buchanan, Richard
Crossman, Rt. Hn. R. H. S.


Bishop, E. S.
Butler, Herbert (Hackney, C.)
Cullen, Mrs. Alice


Blackburn, F.
Butler, Mrs. Joyce (Wood Green)
Dalyell, Tam




Davies, G. Elfed (Rhondda, E.)
Johnson, Carol (Lewisham, S.)
Parkin, B. T.


Davies, S. O. (Merthyr)
Johnson,James(K'ston-on-Hull,W.)
Pearson, Arthur (Pontypridd)


Dempsey, James
Jones, J. Idwal (Wrexham)
Pentland, Norman


Diamond, John
Jones, T. W. (Merioneth)
Perry, Ernest G.


Dodds, Norman
Kenyon, Clifford
Popplewell, Ernest


Doig, Peter
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Prentice, R. E.


Donnelly, Desmond
Kerr, Dr. David (W'worth, Central)
Price, J. T. (Westhoughton)


Driberg, Tom
Lawson, George
Probert, Arthur


Duffy, Dr. A. E. P.
Ledger, Ron
Pursey, Cmdr. Harry


Dunn, James A.
Lever, Harold (Cheetham)
Rees, Merlyn


Dunnett, Jack
Lewis, Ron (Carlisle)
Rhodes, Geoffrey


English, Michael
Loughlin, Charles
Roberts, Goronwy (Caernarvon)


Evans, Albert (Islington, S.W.)
Mabon, Dr. J. Dickson
Rogers, George (Kensington, N.)


Fernyhough, E.
McCann, J.
Rose, Paul B.


Fitch, Alan (Wigan)
MacColl, James
Sheldon, Robert


Fletcher, Sir Eric (Islington, E.)
MacDermot, Niall
Shore, Peter (Stepney)


Fletcher, Ted (Darlington)
McGuire, Michael
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C)


Fletcher, Raymond (Ilkeston)
Mclnnes, James
Silkin, John (Deptford)


Floud, Bernard
Mackenzie, Gregor (Rutherglen)
Skeffington, Arthur


Foot, Sir Dingle (Ipswich)
Mackie, John (Enfield, E.)
Slater, Mrs. Harriet (Stoke, N.)


Foot, Michael (Ebbw Vale)
McLeavy, Frank
Slater, Joseph (Sedgefield)


Ford, Ben
MacMillan, Malcolm
Small, William


Fraser, Rt. Hn. Tom (Hamilton)
MacPherson, Malcolm
Solomons, Henry


Freeson, Reginald
Mahon, Peter (Preston, S.)
Stewart, Rt. Hn. Michael


Ginsburg, David
Mahon, Simon (Bootle)
Stones, William


Greenwood, Rt. Hn. Anthony
Mallalieu,J.P. W.(Huddersfield,E.)
Summerskill, Hn. Dr. Shirley


Gregory, Arnold
Mapp, Charles
Swain, Thomas


Grey, Charles
Mason, Roy
Symonds, J. B.


Griffiths, Rt. Hn. James (Lianelly)
Mellish, Robert
Taylor, Bernard (Mansfield)


Gunter, Rt. Hn. R. J.
Millan, Bruce
Thomas, Iorwerth (Rhondda, W.)


Hamilton, James (Bothwell)
Miller, Dr. M. S.
Tinn, James


Hamilton, William (West Fife)
Milne, Edward (Blyth)
Tomney, Frank


Harper, Joseph
Morris, Alfred (Wythenshawe)
Urwin, T. W.


Harrison, Walter (Wakefield)
Morris, Charles (Openshaw)
Walden, Brian (All Saints)


Hazell, Bert
Mulley,Rt.Hn.Frederick(SheffieldPk)
Wallace, George


Henderson, Rt. Hn. Arthur
Murray, Albert
Watkins, Tudor


Hobden, Dennis (Brighton, K'town)
Neal, Harold
Wells, William (Walsall, N.)


Holman, Percy
Newens, Stan
Wilkins, W. A.


Horner, John
Noel-Baker, Francis (Swindon)
Willey, Rt. Hn. Frederick


Howarth, Robert L. (Bolton, E.)
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Williams, Alan (Swansea, W.)


Howie, W.
Oakes, Gordon
Williams, Mrs. Shirley (Hitchin)


Hughes, Cledwyn (Anglesey)
Ogden, Eric
Willis, George (Edinburgh, E.)


Hughes, Emrys (S. Ayrshire)
O'Malley, Brian
Wilson, William (Coventry, S.)


Hughes, Hector (Aberdeen, N.)
Oram, Albert E. (E. Ham, S.)
Winterbottom, R. E.


Hunter, Adam (Dunfermline)
Orme, Stanley
Woodburn, Rt. Hn. A.


Hunter, A. E. (Feltham)
Oswald, Thomas
Woof, Robert


Hynd, H. (Accrington)
Page, Derek (King's Lynn)
Zilliacus, K.


Irving, Sydney (Dartford)
Paget, R. T.



Jackson, Colin
Pannell, Rt. Hn. Charles
TELLERS FOR THE NOES:


Jay, Rt. Hn. Douglas
Pargiter, G. A.
Mr. Ifor Davies and


Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Park, Trevor (Derbyshire, S.E.)
Mr. Harry Gourlay.


Jenkins, Hugh (Putney)
Parker, John

Amendment made: In page 39, line 10, at end insert:
(2) If property held on charitable trusts ceases to be subject to charitable trusts—

(a) the trustees shall be treated as if they had disposed of, and immediately reacquired, the property for a consideration equal to its market value, any gain on the disposal being treated as not accruing to a charity, and
(b) if and so far as any of that property represents, directly or indirectly, the consideration for the disposal of assets by the trustees, any gain accruing on that disposal shall be treated as not having accrued to a charity,
and, notwithstanding the provisions of this Act the limiting time for making assessments, an assessment to capital gains tax chargeable by virtue of paragraph (b) above may be made at any time not more than three years after the end of the year of assessment in which the property ceases to be subject to charitable tn.ists.—[Sir Eric Fletcher.]

Clause, as amended, ordered to stand part of the Bill.

Clause 33.—(SUPERANNUATION FUNDS.)

7.30 p.m.

Question proposed, That the Clause stand part of the Bill.

Mr. Peter Walker: May I request that the Government make clear their position upon partially exempted superannuation schemes? In discussing an Amendment I put two points to the Chief Secretary. There is an administrative difficulty in handling the situation in respect of members transferring out of such schemes and in respect of the provision for reserve which such superannuation funds should make. If the Government are not prepared to answer the question now, perhaps they will give attention to it on Report.

Sir Eric Fletcher: I can add nothing to what was said by the Chief Secretary in the main debate. What was said in that


debate will be considered between now and Report.

Mr. Lubbock: What is the position of retirement benefit schemes approved under Section 388 of the Income Tax Act, 1952?

Sir Eric Fletcher: As the hon. Member knows, one of the difficulties is that some schemes have been approved under the Section and some have not.

Mr. Lubbock: May I give the hon. Member a minute so that a note may be brought to him?
I understand that the schemes which are exempted are only those specifically mentioned in the Clause. I have looked everywhere to see whether there are any others. I am concerned that a scheme which has been approved by the Inland Revenue for the purpose of reclaiming Income Tax is not, apparently, to be exempt from Capital Gains Tax.
I would also point out that there are certain funds which have never been approved under any specific statutory provisions but which, I think, are called discretionary schemes and which the Inland Revenue have allowed for Income Tax purposes under no particular provision either of the Income Tax Act, 1952, or of any of its predecessors. It seems to me logical that if those schemes have been approved for Income Tax purposes, and if the only object of those schemes is to provide pensions or other superannuation benefits for the beneficiaries, they should also be exempt from the Capital Gains Tax.
I should like to hear from the Minister without Portfolio not only what is the position of Section 388 schemes but also why the Clause was not drawn much more widely to cover all retirement benefits and superannuation schemes which have been approved by the Inland Revenue for Income Tax purposes.

Sir Eric Fletcher: The hon. Member should realise that superannuation schemes vary a great deal. It is for that reason that the Income Tax Act provides that Income Tax relief is available only in respect of superannuation funds which are approved by the Inland Revenue. For example, some provide

merely for pensions and others provide for capital sums on retirement. These involve quite different considerations from pure Income Tax considerations. The theory always has been that to participate in relief for Income Tax purposes a superannuation fund should have its provisions approved by the Board of Inland Revenue. It follows as a natural consequence and as a matter of logic that only funds so approved should have the benefit of exemption from the Capital Gains Tax.

Mr. Lubbock: I am sorry to press the hon. Gentleman on this point, but I do not think that he understood what I said. I said that there were schemes which were approved by the Inland Revenue, either under Section 388 or under a discretion given to it, in respect of which it was possible to reclaim Income Tax but that in this Clause only certain Sections of the Income Tax Act, 1952, are mentioned, and that Section 388, which is entitled "Approval of retirement benefits schemes", is not one of them. The Inland Revenue has to approve Section 388 schemes and therefore it comes within the category which the hon. Gentleman has mentioned. Yet Section 388 is not mentioned anywhere in Clause 33. That is what I am arguing about.
There are other schemes which provide pension or other superannuation benefits which are not approved by the Inland Revenue under any Statute but which are approved under a discretion given to the officers of the Inland Revenue. Why cannot the Clause be widened to say that wherever they are approved for Income Tax purposes they shall also be exempt from Capital Gains Tax?

Sir Eric Fletcher: The answer is that until the hon. Gentleman raised the point nobody had ever suggested that these funds should be approved. There is no Amendment on the Notice Paper to suggest that the Bill should be extended to them. I have never heard it suggested, among all the representations which the Government have received on this Bill, that there should be the kind of extension to Clause 33 which the hon. Gentleman suggests.
We thought that the proper course was to apply Section 379. The hon.


Gentleman, on the Question, "That the Clause stand part of the Bill", and without tabling an Amendment, has raised an entirely new point. I shall certainly look into it, but my offhand impression is that it would be wrong and contrary to the whole spirit of the Clause to grant the extended relief suggested.

Mr. Peter Walker: The representations made to the Government on this Clause by the Institute of Actuaries asked that all superannuation funds, irrespective of the Section which they came under, should be covered by this Clause. Therefore, representations have been received.

Mr. Lubbock: Would the hon. Gentleman agree to consider this matter on Report if I put a case to him in writing?

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 34.—(UNIT TRUSTS AND INVESTMENT TRUSTS.)

7.45 p.m.

Mr. Heath: I beg to move Amendment No. 234, in page 40, line 4, to leave out subsection (1) and to insert:
(1) A gain shall not be a chargeable gain if it accrues to a unit trust or to an investment trust to which this section applies.

The Deputy-Chairman (Sir Samuel Storey): We can discuss, at the same time, Amendment No. 372, page 40, line 4, at beginning, insert:
(1) If in accordance with section 63 of this Act the chargeable gains of a unit trust for an accounting period are apportioned to shares in the unit trust the amount apportioned to any such shares other than shares of which the holder is an individual person whose total income in the year of assessment in which the apportionment is made is such that he is not liable to surtax for that year shall be treated for the purposes of this Part of this Act as if it were—

(a) a capital distribution received by him at the time of the apportionment and paragraph 3 of Schedule 7 to this Act shall apply thereto accordingly; and
(b) expenditure allowable under paragraph 4 of Schedule 6 to this Act and incurred by the person holding the shares at the time when the amount was apportioned to those shares.

Amendment No. 45, page 40, line 4, leave out subsection (1) and insert:
(1) A unit trust or investment trust shall be exempt from tax on chargeable gains.

Amendment No. 373, page 40, line 5, leave out "a unit trust or" and insert "an".

Amendment No. 210, page 40, line 5, leave out "a unit trust or".

Amendment No. 211, page 40, line 6, leave out "unit trust or".

Amendment No. 51, page 40, line 12, leave out "and the said section 63".

Amendment No. 368, page 40, line 28, at end add:
(3) The total net gains realised by the trustees of an authorized unit trust scheme in any accounting period may be distributed to unit holders and the trustees shall not be chargeable to tax on any gains so distributed.
(4) Gains distributed in accordance with subsection (3) above shall be chargeable to tax for the purposes of this Part of this Act as if the said distribution were a chargeable gain on an asset realized at the date of the distribution.
(5) If the trustees of an authorized unit trust scheme certify to the unit holders the amount of the total net gains realized by them the amounts so certified shall be deemed to be distributed for the purposes of subsections (3) and (4) of this section. The amounts so certified shall be treated for the purpose of this Part of this Act as if it were expenditure allowable under paragraph 4 of Schedule 6 to this Act.

Amendment No. 375, Clause 63, page 79, line 31, leave out paragraph (a) and insert:
(a) the trustees of authorised unit trust schemes shall not be liable to corporation tax in respect of chargeable gains; and.

Amendment No. 379, Clause 63, page 79, line 36, at end insert:
Provided that for the purpose of computing the liability to corporation tax of any unit trust the amount of chargeable gains accruing to the trust in any accounting period shall be treated as reduced by the fraction of such gains of which the numerator is the amount by which the aggregate of the sums paid by the trust in respect of the cancellation of units exceeds the aggregate of the sums received by the trust in respect of the ceration of units during the period and the denominator is the total consideration received by the trust on the disposal of chargeable assets during the period.

Amendment No. 380, Clause 63, page 79, line 37, after "gains", insert:
(reduced where appropriate in accordance with the proviso to the last preceding subsection)".

Amendment No. 215, Clause 63, page 79, line 38, leave out "a unit" and insert "an investment".

Amendment No. 228, Clause 63, page 80, line 37, leave out subsection (7) and insert:
(7) For the purpose of this section "investment trust" shall have the meaning assigned to it by section 34 of this Act.

Mr. Heath: On an earlier Amendment, the Committee has shown its deep concern over matters affecting investment trusts and unit trusts and its great anxiety about the consequences of the Bill as it is drafted on charities. Indeed, the Government managed to muster a majority of only three in the face of a combined assault by the parties in opposition on their proposals. The Committee will agree, I think, that this is an important Amendment, which proposes to exempt investment and unit trusts from the Capital Gains Tax. This is a debate of considerable significance.
We have, from the first, drawn attention to the points set out in these Amendments. We emphasised them when the Chancellor of the Exchequer first put forward his proposals for the two new taxes. We emphasised them again when he amplified his statement to the House. We also drew attention to them in the debate on the Budget, and on the Second Reading of this Bill. I know that the Chancellor and the Chief Secretary have received many representations from those concerned about the consequences of the Bill as it is drafted.
I hope that the Committee agrees about the immense importance of those affected by the Bill. I understand that the assets of investment trusts today are in excess of £3,000 million. There are tens of thousands of small holdings in the investment trusts. In addition, there are large holdings by the institutions governing pension funds and superannuation funds and the insurance companies. There is, therefore, in the investment trust movement a combination of the small investor and the large institution governing the interests of many thousands of individuals.
According to the latest figures available at the end of last month, the average holding in unit trusts in £334. This demonstrates that pre-eminently the interest in them is that of the small investor who invests his personal savings

and gets, as the Chief Secretary has described, the advantages of expert advice, wise management and a good spread of investments. It is therefore no exaggeration to say that the Bill will have consequences for millions of people through the superannuation and pension funds and the direct personal small investments in the unit trusts and investment trusts.
We on this side of the Committee believe in encouraging the small investor. It is not only a question of not discouraging him; we believe in actively encouraging him. We have long professed our belief in, and tried to encourage, a property-owning democracy. This is to be interpreted not only in the literal sense of owning one's house and home but also in the sense of property owning in other spheres.
The unit trust and investment trust method has always seemed to us on this side to be, perhaps, the best way in which the small investor can start to invest, apart from in his own home. Naturally, when a person first starts to invest, he looks to his own home, but, after that, he looks for a wider investment in securities and tries to achieve this through the unit trust and investment trust. We on this side have a deep belief that this should be encouraged and, to judge from the words of the Chief Secretary on an earlier Amendment, hon. and right hon. Members opposite have no desire to discourage it, although I am not certain that they wish to encourage investment of this kind. Perhaps there is a difference between us. If the Chief Secretary says that the objective of the present Administration is to encourage the small investor, no one will be more pleased than we on this side. We shall be delighted if he says that, because we shall then be able to hold him to his words and point out how his actions tend to militate against their effect.
I hope that the hon. Gentleman will go as far as to say that he wishes to encourage the small investor. We believe that it is desirable for individual reasons, which I have explained, and we believe that it is desirable for national reasons as well. At this moment, I do not wish to discuss the state of the economy, although the hon. Member for Manchester, Cheetham (Mr. Harold Lever) never hesitates to point out its perilous condition whenever he speaks on any Amendment. However, if


the economy is to have the investment in plant and the modernisation of our factories which it ought to have, there must be a great increase in savings, and this increase must come not only from the large investor but from the aggregate of small investors. With the rising level of wages in this country, we should, I suggest, encourage a much greater amount of saving by the small investor. These are the reasons, both individual and national, why there should be such encouragement.
Undoubtedly, the general effect of the Corporation Tax and the changes in taxation will present investment trusts with a number of difficulties. There are the difficulties which will arise from the adverse effect on individual shareholders in normal companies as a result of the changes in taxation. In this, they are subject, like other investors, to particular problems. There is also the problem that the investment trust has a large part of its assets placed overseas. I think that about £872 million, or 28 per cent., of the £3,000 million I mentioned is invested outside the United Kingdom. Here again, investment trusts are liable to suffer the general disadvantages which arise from the introduction of the Corporation Tax which we shall be discussing later.
In addition, investment trusts, naturally, wish to switch their investments from time to time in the interests of their shareholders. This is an aspect of the wise management to which the Chief Secretary referred. Overseas, they will come under the new penalty when one switches one's investment in a dollar holding, and this will be another disadvantage in their present state. At the same time, as a result of the Bill as drafted, they will have to pay Capital Gains Tax on appreciation of securities which they hold if they switch them at home as well as overseas.
I am sure that the Chief Secretary knows that capital gains which are made in an investment trust, that is, the capital appreciation when it is realised, go into further capital investment. It is not paid out in the form of normal dividend to the shareholder. This distinction is made by law, I believe, and will continue to be made in respect of investment trusts. Therefore, from their point of view, any appreciation of capital will have to go in further capital investment. As a result

of Capital Gains Tax, there will be damage to their further capital investment and to the investments of their shareholders. Also, as I said on an earlier Amendment, following the definition of the hon. Member for Cheetham, this is a clear example of double taxation. There is the taxation of capital gains by the original company, and, when an investment trust switches its shareholding, although that Capital Gains Tax has already been paid by the original company, the trust has to pay Capital Gains Tax on any appreciation which it makes.
If investment trusts are exempt from Capital Gains Tax under the Amendment, the shareholder who sells his holding in an investment trust will himself have to pay Capital Gains Tax. That is fully accepted. But, of course, the Government have put forward a most complicated administrative procedure whereby the individual shareholder is given a certificate for exemption in respect of the tax on the gain paid by the investment trust. But, here again, there is a difference. Whereas the individual shareholder, if he were responsible for the whole Capital Gains Tax, would be paying at the rate of 30 per cent., the investment trust will have to pay at the rate of at least 35 per cent. or—I hope that we can agree on the words here—not more than 40 per cent., according to what the Chancellor said. I hope that we shall not have the same sterile argument with the Chief Secretary about what the Corporation Tax will be in fact. The individual paying Capital Gains Tax would pay at 30 per cent., but the investment trust would have to pay something between 35 per cent. and, as the Chancellor said, a maximum of 40 per cent. Therefore, it would be between 5 per cent. and 10 per cent. more than the individual would pay on his own shareholding.
We regard this as unjustifiable. In the interests of the small investor, superannuation funds and pension funds, investment trusts should not be required to pay Capital Gains Tax a second time on any appreciation of shares it has which will arise only because it is switching its holdings for the benefit of its shareholders and reinvesting its capital, not paying it out. Then the shareholder himself will pay at the rate for the individual.
For the unit trust, there are further complications due to the statutory obligations placed upon them by the Board of Trade. These obligations are peculiar to unit trusts, but I think that the whole Committee will agree that they are justifiable. At some future date, when we come to reform the company law and implement the recommendations of the Jenkins Committee, changes may have to be made in regard to unit trusts. We were considering this in the last Administration, and I have no doubt that the present Administration will consider it. At present, however, there are clear regulations laid upon unit trusts by the Board of Trade. In the same way, they will be liable for Capital Gains Tax, with the same administrative procedure laid down under Clause 63(3). The difficulty for unit trusts arises from the Board of Trade's insistence, quite rightly, on equity among the three groups of unit holders at any one moment—those who are continuing to hold, those who are selling and those who are buying—and it is the administrative difficulty arising from the need to secure this fair balance that produces a real problem for the unit trust.
So far, the general operations of unit trusts have not produced any problem, but, if the Government try to implement their present proposals, the complications will, undoubtedly, be considerable. From the point of view of principle, it cannot be right to impose Capital Gains Tax on unit trusts as such. If it is imposed on the holder of the units when he liquidates his holding, that is perfectly clear, and it would be justifiable. Moreover, it would avoid double taxation. I cannot see why the Chief Secretary and the Government are so anxious to keep unit trusts in particular under the obligation to pay Capital Gains Tax and to introduce what is really a most complicated administrative procedure of certificates, particularly complicated for the unit trust.
I cannot agree that there is any danger here of evasion by the wealthy or the surtax payer because, if a man has a large holding in a unit trust, he will have to pay Capital Gains Tax when he realises his units. I cannot see why there should be particular anxiety about the possibility that someone might go in

for large holdings in unit trusts. But, even if there were ground for such anxiety, the fact that predominantly holdings are small—I have already referred to the average holding of £334—out-weighs any disadvantage which the Chief Secretary might see or any anxiety he might have about the larger holder.
8.0 p.m.
The administrative problem is that, as far as Capital Gains Tax is concerned, the unit trusts will have two alternatives. Either they have to meet contingent liability for any capital gains they may make or they have to take no account of liability for capital gains till they realise them, and whichever course they decide, they are going to be unfair to one of the three groups whose interests they have to consider under Board of Trade Regulations. They will be unfair either to those who are buying them, because they would have to buy their units at a price which made allowance for the contingency fund which has been set up, or, of course, as soon as they have bought them at the lower price, the value of the unit becomes that of the normal value and the chap who buys gets an immediate advantage over those who are in the fund by which they provide for contingent liability. Exactly the same problem arises if they wait till the capital gains are realised, because then those who sell beforehand get an unfair advantage.
So these are really administrative complications which arise from the system put forward by the Government. I think that the only real answer to this is to adopt the proposal which we put forward, that they should be exempt from the capital gains, that capital gains should fall on the holder either of the holdings in the investment trust or of the units in the unit trust. This will avoid the problems which arise from the present arrangements on which the Board of Trade, quite rightly, insists. It will avoid the administrative complications of the certificate system which are set out in Clause 63(3) of the Government's present scheme.
I believe that this is fully justified in principle and in practice. I know that these objections have been brought to the notice of the Chief Secretary and that he has been having discussions with the


Association of Unit Trusts and with many others who are interested in this. I have a feeling that when the Bill was drafted the Government did not realise the administrative complications which were involved, particularly for the unit trusts. I have a feeling, too, that perhaps they had not really thought through the complications of the Government's scheme both to the original shareholdings and to the investment trusts themselves. I am sure that the Chief Secretary and his advisers have had a wealth of information about the problems which arise, and I know that in fact certain schemes have been submitted to him for his consideration.
We move this Amendment because we believe, on grounds of principle as well as of administrative practice that it is desirable that both investment trusts and unit trusts should be exempt from capital gains, and that the burden should fall on the person holding the shares and the units. That is what we believe to be the right solution, and I would urge it upon the Chief Secretary.

Sir Lionel Heald: I wish to support my right hon. Friend the Member for Bexley (Mr. Heath) on this Amendment. Perhaps I may draw attention to Amendment No. 45 in my name and the names of five other hon. Members, including the hon. Member for Orpington (Mr. Lubbock), who, I hope and believe, will be fully in agreement with the argument which I propose to put forward. The effect of that Amendment is exactly the same as that of this, and the object is to prevent the application of Capital Gains Tax to investment and unit trusts, but not to their shareholders or members. So it is in no sense a wrecking Amendment.
The argument assumes that Capital Gains Tax will be applicable at the proper place and time, that is to say, if and when the shareholder or member actually realises a gain on disposal, that is to say, the only time when he has an interest in anything except income, on which, of course, he pays Income Tax.
I feel a heavy responsibility in presenting this Amendment. It affects, I believe, between 3 million and 4 million people. It would have been so much more appropriate, and it would have been done so much better, if Maurice Macmillan had

been here. As Chairman of the Wider Share Ownership Council he has for a long time been an outstanding champion of the small investor. I hope that it is not out of place to say that I believe his temporary absence is regretted in all parts of the Committee. We are glad to know that he will soon be back again, all being well, and the sooner the better, and I am also quite certain that he has the heartfelt sympathy of every single hon. Member in this Committee in the recent distress to himself and his family.
I am not myself a member of the Council. I can speak only as one of the 3 or 4 million small investors who have interests in these companies. Perhaps it is an advantage that I am not a member of the Council because I am not inhibited, as I might otherwise have been, in pointing out that the Vice-Chairman is Lord Longford. He is, unfortunately, prevented by the constitution from giving to us any practical views, which I am sure he has, on the iniquity of the method which the Government have chosen for applying Capital Gains Tax to this particular object, but he is not prevented from expressing his views within the Cabinet, and I hope he will do so after he has studied what will have been said during this debate.
I do not propose to repeat what my right hon. Friend has already said so clearly and succinctly about the problem and the objections which are raised. Certainly, more will be heard of them from my hon. Friends very soon. I would merely summarise the main objections as I see them to this proposed method of application. The application of the tax at what I may call the company level is based not on any actual gain, but on a notional gain. This has the effect that every investor's shareholding is subject to Corporation Tax at 35 per cent. or 40 per cent., whereas if he invested direct in the various companies—which, of course, he cannot do, being a small man—he would be entitled to relief by way of assessment on the alternative basis, if he qualified, with this result, that he would then get the rate reduced, 27½ per cent. standard rate.
If we take a married, retired man and wife with an income of £900 or less it comes down to 22½ per cent., and so it goes on and on, till the very small investor is paying nothing at all, whereas now, if


he is so wicked as to invest in investment trusts he will pay 35 or 40 per cent. That is the inevitable result, as we have already been told by the Chief Secretary. I am very glad that in his speech on the charities issue he made it very clear that this is the inevitable and unavoidable result of this great principle.
To underline the unfairness of this method, it should be added that whereas the trading company is not taxed when it obtains a nominal gain on the replacement of fixed assets—that is Clause 31—the investment company is taxed when it does the same with its fixed assets. There is not technical justification whatsoever for this.
As regards overseas investment, there is the point which I am sure one or more of my hon. Friends will want to deal with, and I shall not trespass on their area.
Finally, this so-called relief under Clause 63 is not only illusory and adequate, but is apparently quite unworkable. This point about the unworkability seems to have been overlooked by the commentators on this subject. They may have been misled by the casual bonhomie of the Chancellor, who passed over this matter very lightly in his Budget speech. In column 246, on 6th April, he gave the impression that it was a straightforward proposition. In fact, I am told that if one tried to work it it would be necessary to have a computer working day and night in every company office. It is a pity that the right hon. Gentleman the Minister of Technology has gone—he was here a few minutes ago—because he might have been able to tell us how this would be organised.
After listening to the Chief Secretary, and remembering what the Chancellor said in his Budget speech, I cannot help wondering whether they understand what the investment trust is, because on 6th April, the Chancellor said:
I propose that capital gains realised by companies … shall be subject to corporation tax at the corporation tax rate. A company is a continuing association which has as its main purpose making profits; whether those profits arise as trading income or as capital gains … and I think that it is right that they should be taxed at the same rate."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 250–1.]

The investment company is not there for the purpose of making profits at all. In effect, the Government have missed the point from the beginning.
8.15 p.m.
The argument which has been put up is really a façade. When the vices of this tax have been gone into, they will, I think, be found to be quite clear. I leave it to my hon. Friends, who are much better qualified than I am, to deal with the details. I want to confine myself to the inference to be drawn from the fact that such vices exist and that there is a reluctance in any way to modify them, and the effect which they should have on the attitude of the Committee to the Amendment.
In the first place, it is clear that this method cannot be justified on the criteria laid down by the Financial Secretary, who talked about the wicked capitalist. Even the classic steamroller of my right hon. Friend the Member for Harrogate (Mr. Ramsden) would, I suppose, be satisfied by the method of treating the shareholder's actual realisation as the subject of this tax. These additional imposts are something altogether different, and much more sinister. They are, in effect, a deterrent. They are a fine for having the effrontery to use the collective method of investment. It is rather like what happened to Admiral Byng—"pour encourager les autres". They cannot be justified by any consideration of justice, common sense, national expediency, or even by any reasoned argument at all, except one, and I propose to indicate what that argument is upon which they can be justified.
A number of my constituents have asked me, "How can you explain such unfair treatment for the small investor?". I believe that the answer to that is quite simple. I suggest that the explanation lies in the realisation by the ruthless dyed-in-the-wool Socialists who are responsible for this Bill that the investment trust, and even more obviously the unit trust, constitute a real obstacle and danger to the prospects of a Socialist Utopia, so they must be fined, not for any anti-social behaviour—because one could hardly use such an expression in relation to people like Members of Parliament, and, I would hazard a guess, Cabinet Ministers also,


who are investors in this admirable form of investment—but for being anti-Socialist. People must be taught that this is a naughty thing to do, by making them less attactive, and so we heard the Chief Secretary himself unconsciously saying—and unconscious evidence is very often the best evidence, particularly in political speeches—that charities would have to find something else.
It has this advantage too, of simplicity, "Get the Bill through as it stands, and if you get a really big majority you can always jack up the percentage and pretty well wipe them out in no time." Why is it that these Socialists hate investment trusts as much as they do? They must hate them, otherwise they would not do these things to them. Some say that it is due to stupidity and incompetence. I think that that is underrating them very much, and is a dangerous assumption to make. The people involved in this are very clever.

Mr. J. T. Price: The right hon. and learned Gentleman is usually scrupulously fair in presenting his case. He is going rather beyond the mark in making these suggestions in such a polemical way. Socialists on this side of the Committee, including myself, do not hold the views to which he has referred. It is slanderous to charge that against us. One of the largest and most successful investment trusts of which I have personal knowledge is the trade union investment trust. That defeats the right hon. and learned Gentleman's argument.

The Temporary Chairman (Mr. Thomas Steele): Order. The hon. Member's interruption is becoming a speech.

Sir L. Heald: I apologise to the hon. Gentleman. He is an old friend of mine. I did not accuse him of it. I referred to the doctrinaire, ruthless Socialists who are responsible for the Bill, and he is not responsible for it. I am glad of the indication that he does not like it very much, either. Certainly, many of his colleagues do not, and there are very good reasons for that.
I was going to answer the question why those on the Government Front Bench who have prepared, brought in, and now support the Bill, dislike unit trusts. I suggest that the principle of

wider ownership in shares in industrial and commercial enterprises, once understood, must appeal to any thinking person. The urgent need of industry for new capital can no longer be satisfied by a small number of large investors; they do not exist.
That development is very welcome to Socialist ideology, as shown in relation to steel in the Labour Party's constitution, because it favours more and more State participation in industry and, thus, more and more State interference and State control. The dyed-in-the-wool Socialist by whom we are now being governed regards this as a blessed and inevitable prospect.
The Conservative, on the other hand, believes that the encouragement and maintenance of private enterprise is vital to our survival, and the modern Conservative has always preached the doctrine of what is called the property-owning democracy. [Laughter.] That remark apparently causes amusement. The millions of people who have become owners of property during the last few years would not like to think that they had been laughed at by hon. Members opposite. They may have a chance of expressing their views before long. This consideration applies to shares as well as houses, and it is a positive anathema to the Socialists. That is why shareholders in investment trusts are being penalised in the application of this tax.
That is only one example of the evil hotch-potch of the Bill, but it is a very striking example. It proves conclusively that the Socialist leopard has not changed its spots. That fact has been almost totally ignored by political commentators. There have been one or two notable exceptions, but all the rest appear to have been led down the garden path by the Prime Minister's propagandists, and, in their turn, have led the public down the garden path. Let us hope that it is not too late to alert people to the situation. This Clause, like many others, reveals the underlying purpose, object and philosophy of the Bill.
I am on record as having publicly said, the day after the present Prime Minister became Leader of the Opposition, that he was the most dangerous enemy of private enterprise that this country has ever known.

The Temporary Chairman: Order. The right hon. and learned Gentleman must relate his remarks to the Amendment under discussion.

Sir L. Heald: I am much obliged to you, Mr. Steele. I am sorry to have appeared to offend. What I was going to say was that the attitude adopted by the Government in relation to this Amendment and to others proves conclusively that what I have just said is right.

Mr. W. Baxter: On a point of order. The right hon. and learned Gentleman has been making a vicious attack upon the Labour Party as a whole. That attack has apparently been well prepared. Every word is being read from a script. Is that in order?

The Temporary Chairman: The question of what is in order is a matter for the Chair.

Sir L. Heald: When one is dealing with an important and fundamental matter of this kind it is necessary to be careful of one's language. I do not require a note. For many years I have worked in a place where one does not use notes, and I do not need them. But when I am making statements of the kind I have just made I like to make certain that they are right—and they are right.
I hope that on this occasion we shall have a proper answer to the Amendment. We have rarely had one during the whole Committee stage. I hope that we shall get a real answer from the Chief Secretary. I hope that he will agree that what I have said is right, and that the real justification for the Government's proposal is that investment trusts are something on their own in relation to the Capital Gains Tax, and should be discouraged. I hope that the hon. Gentleman will agree that that is the purpose of the action which the Government are taking in refusing exemption.
It is surprising that we should find someone who has been a very distinguished accountant, and who has presumably engaged in assisting both large and small investors as to the best way to invest their money, supporting the proposition which must be supported if the Amendment is to be resisted.

Sir Richard Thompson: Poacher turned gamekeeper.

Sir L. Heald: That is one way of putting it.
When the Chief Secretary replies I hope that we shall hear an agreeable story. I hope that he will tell us that at one time he was astray in this wicked field of things like investment trusts, but that the day came when he went for a journey and when suddenly a light shone all round him, and he saw a vision of the Socialist paradise, which caused his conversion. That is the only way that he can explain his attitude.

8.30 p.m.

Mr. W. Baxter: I do not propose to follow the right hon. and learned Member for Chertsey (Sir L. Heald) on the line of argument which he addressed the Committee, other than to say that it was gratifying that when attention was drawn to the fact that he was reading his speech the right hon. and learned Gentleman soon finished.
I think that there is some justification for asking for an explanation of the provisions in this Clause. It is right that it should go forth from this Committee that there is some anxiety, even among hon. Members on this side of the Committee, that unit trusts and investment trusts are to be taxed, as appears in the Clause. We should be as fair as possible in such a matter and I should like my hon. Friend to give us a satisfactory explanation.
Organisations such as pension funds and superannuation funds invest money through unit or investment trusts. To me, the trust appears to be only the agent of the investor. It gains nothing. It invests the money and passes back the proceeds to the investor. It is not unlike an individual instructing his broker to invest on his behalf. In such a transaction a profit may accrue to the investor, but the broker is not taxed on it. If the investor makes his investment through a unit trust or an investment trust the profit will inevitably be taxed, as I understand the provisions of the Clause. That seems to be unfair. The small investor is penalised.
We seek to encourage the small investor to join a unit trust and to put his money into industrial undertakings. The result of these provisions would appear to be what has been described in the past as


double taxation. If that is not so, I should like a satisfactory explanation. It is important that we should get this matter clear.
A large industrial undertaking or a local authority pension fund investing directly in industrial undertakings would be at an advantage compared with a smaller pension fund investing through a unit or investment trust. If that is not so, I should like it explained, but from the strict interpretation of the Clause it appears to me that those who invest through units or investment trusts will carry a heavier taxation burden than those who invest directly in an industrial undertaking. I may be wrong, but that is the purport of the argument adduced from the benches opposite, and I think there is some justification for it. I have no personal investment in a unit trust or investment trust, but millions of people do invest in such trusts. We wish to encourage them and to increase their number. I should not like it to go out from this Committee that the present Government were in any way stultifying that great project.

Mr. Hirst: The hon. Member for West Stirlingshire (Mr. W. Baxter) is one of the greatest optimists whom I have heard for a long time if he imagines that he will get any answer from the Treasury Bench. His only recourse would be to join us in the Lobby in due course on behalf of the small savers. He certainly will not get an answer at the present standard—

Mr. R. Gresham Cooke: He made a good point.

Mr. Hirst: It was a good point, and I am not disputing it, although I often quarrel with his speeches and he with mine. I was saying only that he is a supreme optimist.
My right hon. and learned Friend the Member for Chertsey (Sir L. Heald) said quite correctly that this attack on the unit trusts and the investment trusts was from a Government and party of dyed in the wool Socialists. Having taken part in these finance debates a good deal over the years, I know that the Chief Secretary has in the past made many speeches which I would not call dyed in the wool, so I do not know how he has been captured for the present team. We are dis-

cussing a very important range of about 25 Amendments. I approve of them all. I think that I have signed 21, which are frightfully fundamental to a vast number of people in a very great movement.
We have mentioned this matter before and it has to be mentioned again. My right hon. Friend the Member for Bexley (Mr. Heath) said that he hoped that the Government would not discourage—let alone encourage—the movement of investment and unit trusts. This is not the picture. This Finance Bill is not designed to encourage them. If the Government, even at this late hour, want to give the slightest impression that they are genuinely out to encourage and not discourage this movement, it is only by an Amendment such as this that they can make that understandable to the vast mass of people who are now deeply interested in the subject.
My right hon. and learned Friend the Member for Chertsey was right in pointing out the tremendous number of people involved. What a wonderful movement this is. Is it not exactly what any nation like ours, with all the need and desire to encourage the development of our country and the association of the people in it, would welcome, in the opportunity which it gives to all of us, quite apart from the individual advantage? We should also encourage the individual advantage, of course, to get people to save in relatively small lots. The average, even including the big institutions, is about £300, so it is small. It is something which we ought to encourage and not to discourage in the manner which is prescribed in the Clause.
This is vital. All the Government's aspirations, whatever they are, count for nothing compared with this great need and this great movement which has been developing over the years. I applaud it as one of the greatest things which has ever happened. I have always wanted to see people investing in industry. I have pushed in the House before that investment trusts as we know them in this country should have a different tax system, as is the case with their counterparts in the United States. I have always believed that the finest thing which could happen is that workers of every degree should put their savings into movements of this nature.
I think that the unit trusts and investment trusts are better than some of the systems of savings schemes in the United States, because they spread the risk and ensure the expert management which is not always discernible in the "share shops" in the United States, where people have not yet learned that expertise and discretion which allows them to choose their invesments wisely.
I have said before and, if necessary, I will say again 150 times, that double taxation is a gross injustice and should never be permitted more than it can be avoided. I admit that there may be times when it is unavoidable, but to legislate for double taxation is disgraceful. How the Chief Secretary, whose speeches on this side of the Chamber I have heard many times, can possibly sit there and represent a Government introducing that sort of element gratuitously, damagingly and knowingly is one of the biggest surprises which I have seen from a surprising Government.

Mr. Diamond: Perhaps the hon. Gentleman will allow me to explain that the main reason why I can sit here and listen patiently to his admonitions is that I have listened to him so many times criticising the occupant of my position that I have become used to it.

Mr. Hirst: I take the point 100 per cent. I have made many speeches criticising my own side, because I stand up for what I believe to be true. I have done it against all the Whips in Christendom and I shall do it again, but at no time did I have to stand up and criticise the Government which I supported for introducing a Measure of this character—double taxation and all that goes with it. Such iniquity never happened. I might have criticised details, but I have never seen a Finance Bill as disgraceful, as despicable and as damaging as this. I could not have imagined what had happened if I had. I would have had to leave the party, and I am still happy in it. That is my answer to the hon. Gentleman.
Unit trusts have immense value in their flexibility and ease and fairness and are able to expand or contract to the occasion perfectly. If we are to have all this business of certificates and so on under

Clause 63, it will be pure madness. How will they have the same ease of flexibility? I have nothing to do with unit trusts, but I am applying some intelligence to the matter. How will they be able to operate with the same ease and advantage of economy to the holders?
What is wrong with unit trusts at the end of the day? Why should not small people be encouraged to put their money into these trusts in the hope that it will be of some value to them and to their families and some protection against the inflation element? If there was ever a time when people wanted to protect themselves from inflation, it is today. What is wrong about it? Why should people not try to protect themselves so that the income in real terms from their investment in future will be something identical with what it is today and not only in the money terms run not by Socialist extravagance and ideological measures which will put ruin to savings schemes?
I beg the hon. Gentleman to give a better answer—at least an answer. He has never had such a bad day as this. He has been surpassed by a long way even by the Financial Secretary who sits there grinning. I have had a few answers from the hon. and learned Gentleman, dusty ones, but none from the Chief Secretary. These Amendments go to the underlying happiness, well-being and confidence of millions of people. Let the Government give the answer they should, or they will take and deserve the consequences.

Mr. Diamond: Perhaps it would be convenient if I replied now. I have listened very carefully to the three speeches from the back benches opposite. They have rested on such misunderstanding of the provisions of the Bill that it might be better if I tried to clear the air now, because there is no point in continuing to argue about what is not provided when the Opposition may want to say something about what is provided.
These two Clauses together—and we are discussing Amendments to two Clauses—provide against double taxation, make provision against the double taxation, of the capital gains of unit and investment trusts. Everything hon. Members opposite have been saying and all their comments about Socialism, myself and all the


rest of it has not been very solidly based, because there is no question whatsoever about whether there should be double taxation. The only question is at what point in time the tax is to be paid. We are considering the difficult question of the point at which we should collect the tax so as to be fair to all taxpayers and investors.
8.45 p.m.
The right hon. Member for Bexley (Mr. Heath) asked me to explain our attitude towards savings. He pointed out that it was necessary that there should be modernisation, and I entirely agree. It is necessary, therefore, that there should be savings which provide for that modernisation. My attitude towards savings is that we must encourage them by every possible method, and I mean all kinds of savings, not exclusively or inclusively any type.
I completely agree with the right hon. Gentleman that we could not get the modernisation required unless we have the savings and unless we have a new form of taxation which encourages modernisation and ploughback, which is the whole raison d'etre for introducing the Corporation Tax and which results in companies having to pay tax on their capital gains as though they were part of their income. That is the position from which we start. There is no question of double taxation, as my right hon. Friend made clear in his Budget statement.
The strictures of the right hon. and learned Member for Chertsey (Sir L. Heald) were completely ill-founded. Although he had made a careful note of everything he intended to say, I suggest that he did not allow himself time in which to read the provisions of the Bill.

Mr. Hirst: Is the hon. Gentleman not overlooking some of the provisions dealing with O.T.C. companies, not least the creaming off of money, the 25 per cent., which will cause a considerable cost factor to the companies concerned? Does this element not come into the issue, as my right hon. Friend the Member for Bexley (Mr. Heath) suggested?

Mr. Diamond: We are talking about the provision covering the payment of Capital Gains Tax at the Corporation

Tax rate by two categories of corporation known as unit and investment trusts. There is in the Bill provision that the Capital Gains Tax paid by those bodies shall be taken into account so as to prevent double taxation on the recipients. It is the investment or unit trust which pays the tax and not the unit holder or shareholder in the investment trust.
It is suggested that this should be switched around the other way so that, for the sake of simplicity in the administration of unit trusts in particular—this does not affect investment trusts because the question of administration does not arise there—no Capital Gains Tax should be paid by the trust, but by the unit holder.
To be fair to all investors, to all savers and taxpayers, that is not a system which we could adopt. This comes back to many of the speeches that were made by hon. Gentlemen opposite when we were discussing the previous group of Amendments. If we were to say that the shareholder in an investment trust could rely on having a mechanism, an investment trust, under which there would never be any Capital Gains Tax paid until the shareholder himself sold his share—which might not be until his death—then he would be placed at an enormous advantage compared with any other individual.
If an individual wants to invest in a share and makes a capital gain on that share he has to pay tax straight away on realisation. What is proposed in the Amendment is that the realisation of this corporate body should not be susceptible to Capital Gains Tax, but should only be susceptible to the tax when an individual who is a shareholder sells his shares. This individual could, therefore, have a mechanism whereby the whole of his investments could be managed, changed, and switched, with all the advantage of careful and expert management, the advantage of the income combining out of tax-free capital accumulations. He could have all of that at a definite advantage compared with the ordinary taxpayer who is not a shareholder in an investment or unit trust. He would have all these things in a completely unfair way.
People save money through media other than unit and investment trusts and it is only these two which are being


picked out for preferential treatment. If there is to be any equity between savers then these two particular forms cannot be singled out. It is no part of the Government's benevolent attitude towards all forms of savings to single out two particular forms, so one is left with the problem that one is compelled in equity to others, to tax the corporation and not the unit holder.

Mr. Gresham Cooke: Why does not the Financial Secretary make unit trusts just like an ordinary company which does not pay capital gains on its internal operations? For instance, if I bought I.C.I. shares the company would not have to pay capital gains when it sells one factory and buys another. I would only pay capital gains at the time when I finally sell my I.C.I. shares, even if 10 years' hence.

Mr. Diamond: That is just the point. A company will have many transactions resulting in capital gains which will be taxable in that year. What is proposed by this Amendment is to single out an investor who invests by the machinery of investment through unit trusts, and to give him an advantage over the shareholder which the hon. Gentleman has mentioned.

Mr. Heath: Is the hon. Gentleman not arguing now that the main difficulty will be one of deferment? Is he not saying that although he would get the money in the end, because of the case of the investment or unit trust there would be deferment and this would be unfair to other individuals who put their investments directly into firms and switch them from time to time? As the Financial Secretary and the Chief Secretary have emphasised, what they are concerned with here is spending power. This is the only reason they are combining capital with income. Does not this invalidate his argument?

Mr. Diamond: What the right hon. Gentleman has not perhaps realised is the unfair advantage which would accrue to a shareholder of an investment trust, because he would be obtaining the income on the Capital Gains Tax free of accumulations within the investment trust which the ordinary shareholder would be denied. The right hon. Gentleman is proposing to single him out for this bene-

fit. It is not only the point of time at which the revenue gets its share, but it is the distinct advantage which will be given to one saver and one taxpayer as against another. This cannot be done. One must come back to the method proposed in the Bill, of saying that in terms of the point of time Capital Gains Tax should be paid by the corporation and here are methods within the Bill aleady provided to prevent double taxation.
I therefore say that the only question that remains is one of administrative convenience—

Mr. Heath: In arguing the case of discrimination, which I do not accept, is not the Chief Secretary overlooking the fact that an investor making a direct investment will have the disadvantage of a liability when he changes the investment of only 30 per cent., but in the case of the investor in an investment trust the disadvantage is between 35 per cent. and 40 per cent., which is a very severe disadvantage?

Mr. Diamond: I am sorry—I did not deal with the rate of tax, though the right hon. Gentleman made that point.
Without again going into what he calls a stale argument, we all know the hard fact of the 30 per cent. and the 35 per cent., so neither of us need consider whether that gap will increase or decrease in the future. All we know is that there is an extra rate to pay—there is, and no one says there is not. One does not attempt to reduce or extinguish that gap. There are advantages to be obtained from corporate investment as opposed to individual investment. If people want to do that, they must assess the advantages and disadvantages, and there is no difficulty about that.
There have been many discussions relating to administrative convenience. Quite shortly, the difficulties were between the convenience, on the one hand, of the unit trust managers—I do not think that the investment trusts come into this very much—and of the Inland Revenue, on the other. Both must be considered. I am happy to say that as a result of very full discussions—and I want to acknowledge the very great help the Government have had from the associations representing all these bodies, and particularly the right hon. Gentleman the Member for


Taunton (Mr. du Cann), who has taken his proper place in these discussions, and we are very grateful to him—we have reached broad agreement, and I do not want to tie down anyone who has not yet seen any particular Amendments, which will result in Amendments being put down on Report which, I hope, by the time they have been read and carefully considered by all interests, will be found to have met the difficulty.
Shortly, the method proposed is that unit trusts will pay Capital Gains Tax on changes of investment on the assumption that their units remain constant in number, but if the units are falling—that is to say, if individuals had been paid back—that amount will be deducted from the figure on which the Capital Gains Tax is assessed, so that the trust will be assessed only on the capital gains made in respect of a continuing number of unit holders, and the unit holders who have sold out, who have left, who have been repaid, will be assessed individually on any capital gains they have made. As a result, there will be a fairly simple assessment on the unit trusts in respect of their switching, and the Inland Revenue will have to seek out each individual holder who has been repaid during the period and collect from him individually the Capital Gains Tax which will not have been paid by the trust.
This is a reasonable half-way house. It will mean that the administrative problem; of the trusts will be virtually extinguished. It will mean that the Inland Revenue will have the difficulty of collecting tax from individuals instead of as, under the present system, collecting direct from the company. Nevertheless, this is a reasonable half-way house, and I am glad to say that it is being put forward by the associations themselves and that, after careful consideration, we have agreed to incorporate it in the Bill on Report.

Sir Knox Cunningham: Does the hon. Gentleman seriously say that this is a simple method?

9.0 p.m.

Mr. Diamond: Yes, it is quite simple having regard to the kind of institution that a unit trust is and having regard to the work which a unit trust already has to do. Perhaps the

hon. and learned Gentleman is not aware of the problems of valuation and certificates which already rest on the managers of unit trusts. It is because a unit trust is this kind of organisation that it has these problems, and we do not feel that these problems are being added to.
I repeat that after full discussions, after other suggestions were found not to be acceptable, this was the suggestion made on behalf of the unit trusts, and we find it acceptable and will incorporate in the Bill an Amendment which, we hope, will prove acceptable after it has been given full consideration by the interests concerned.
Having explained why we must tax the investment or unit trust in the first place, how it is clear in the Bill that there is no question of double taxation because the unit holder or investment share holder will not be taxed again, and how we have solved our administrative problems in agreement with the unit and investment trusts, I hope that on further consideration the right hon. Gentleman and his hon. Friends will be able to withdraw their Amendment.

Mr. Gower: It would be very churlish if anyone speaking on this side of the Committee at this stage of the debate did not welcome any step forward which was being made to narrow the serious differences which have so far existed between the two sides on this very important issue. I only hope that the hon. Gentleman's explanation was more difficult than the solution it prescribed.
My only comment is that the very nature of the problem and the long negotiations remind us what an objectionable tax this has proved to be in all its aspects. I sincerely hope that the solution will be the one that we hope for. The hon. Gentleman will be aware that in relation to both the unit trust world and the investment trust world the period since his right hon. Friend first proposed to make these important changes has been a prolonged one of great anxiety in the minds of all associated with those movements. If there has been some solution which will measure up to the need, I should be the last not to afford it a welcome. I hope that the hon. Gentleman will bear in mind the importance of having a solution which does not impose extra great expense on the management


of the unit trust. That has been a matter of some importance as he is well aware.
The hon. Gentleman told my right hon. Friend the Member for Bexley (Mr. Heath) that he was a supporter of saving in all its aspects. He implied that he was a supporter of these important organisations of investment and unit trusts. But his enthusiasm was hardly expressed in the words that he uttered. Indeed, there was a singular lack of enthusiasm, and I hope that he has greater enthusiasm than he showed.
As my hon. Friend the Member for Shipley (Mr. Hirst) said, I think the unit trust movement has been the most encouraging and promising thing which has happened since the end of the war. It is something in which we can take pleasure. I sincerely hope that this last period of anxiety will be only a temporary phase in its growth. Although hon. Gentlemen on both sides of the Committee have pointed to the extent of the movement, its importance and its size, we ought to realise that it is still a small movement, particularly compared with the mutual funds in America, and that it is still perhaps only in the position that the building societies were in relatively at the turn of the century. We still have a very great way to go before we have the kind of industrial property owning democracy which can be compared with the ownership of houses.
I hope that the Chief Secretary's solution will commend itself to the House when we see it. We can only infer from his remarks what it may resemble. I hope that it will be as satisfactory as he suggested. I doubt that it can be as simple.

Mr. Harold Lever: I hesitate to trouble the Committee after this prolonged debate, but the right hon. and learned Member for Chertsey (Sir L. Heald) referred to the Wider Share Ownership movement and its vice-chairman, Lord Longford. Lord Longford had to retire on entering the Government, and I must declare an interest by saying that I undertook to replace him in that position.
I have a further interest to declare. I represent mainly very poor and humble people in my constituency. I cannot pretend to be either poor or humble. I hope that my hon. Friends will believe me

when I say that I could declare a few financial interests in connection with investment and unit trusts, and, I am sure either directly or indirectly, in the effect of the provisions of the Bill. However, I beg my hon. Friends to believe that in both respects this merely adds to the diffidence that I feel in speaking as I am in duty bound to do. Far from causing me to lean in favour of unit and investment trusts, the City and the like, it causes me very great diffidence and hesitation before espousing, or appearing to espouse, their cause, and if I do so, it is because I believe that I am espousing the cause of many humble people in my constituency who sent me here to represent their interests. I may be wrong, but it is in all sincerity that I offer my views.
Since we must have Conservative Members of the House of Commons, I regret that one of them is not Maurice Macmillan. He is the chairman of the movement of which I have undertaken to be the vice-chairman. I share the grief expressed by the right hon. and learned Member for Chertsey at the misfortune which overtook Maurice Macmillan recently. I hope that he will replace one or other of the hon. Members opposite at the time of the next election.
In approaching the problem, the first point to bear in mind is our attitude to savings and investment. I say loudly, clearly and unambiguously, and open to criticism from anybody who cares to make it, that I am unqualifiedly in favour of wider investment by the public. I endorse entirely everything which has been said on that subject, in a non-party sense. What would surprise me would be a suggestion that the Labour Party, which has fought so hard and successfully for the betterment of the standards of the working people and poor people in this country, was not in favour of investment. If one is on miserable wages, as was the case at the beginning of the century, one has nothing to invest. One is lucky to keep body and soul together and to feed one's children.
The aim of the Labour movement is to raise the standard of life of the working people and the poor people, and we should be proud to think that, largely through their political pressure and achievement, working people in this country are able and have the means to invest in all forms of investment in the


same way as others who are better off. Perhaps they cannot do it to the same extent; but, to the extent that they are able to save, it is a movement very much to be desired, welcomed and encouraged. Indeed, all Labour Party supporters may know better than do hon. Members opposite that the possession of a small fund of savings means an addition to the personal freedom of the individual which is entirely to be welcomed.
I make no bones about it: a sensible and honest appraisal of savings in relation to the working people must welcome this development in all the forms which it may take. Nobody who is expert or experienced in investment funds denies that in the modern world the investment, at any rate in part, of the working people and of small savers ought to be in equities. Nobody who has any experience in these matters doubts that there has been a vast improvement not only in America but in this country in this matter compared with what used to take place before the war. Lawyers, trustees and accountants know that it was commonplace before the war that working-class and middle-class people saved at great cost and effort to themselves for their old age and for their families, that unfortunately they were not specially expert at saving and that often they found only a fraction of their savings available to them in their old age because of their mis-investment.
It is entirely to be welcomed that that phenomenon has virtually been abolished by the fact that those who want to invest, as opposed to those who want to gamble—and I am not preaching against gambling; I am not here to inflict a sermon upon my colleagues but to deal with the problems which arise on this issue—have no difficulty at all in the modern world because the skilful professionalism of the City of London has gradually evolved the most subtle institution for all sizes of shareholders to invest with complete spread and with complete safety. I make no bones about saying that this is is an entirely welcome development and one which the Labour Government must do everything to foster and encourage. I flatly repudiate the charge—although it may have been made in good faith—made by the right hon. and learned Member for Chertsey that the Labour Party

wishes to discourage the small saver or even that it wishes not to encourage him.

Mr. Geoffrey Wilson: Some of the hon. Member's hon. Friends are not very enthusiastic about his speech.

Mr. Lever: I dare say that there are shades of opinion on this matter on this side of the Committee. Hon. Members opposite have been known to have differences of opinion.

The Temporary Chairman: Order. I hope that the hon. Member will relate his remarks to the Amendment.

Mr. Lever: I thought that my remarks had been to the letter, to the word, and to the comma related to the Amendment.

The Temporary Chairman: Yes, but I thought that the hon. Member was about to rise to the bait offered him by the hon. Member for Truro (Mr. Geoffrey Wilson).

Mr. Lever: If you will forgive me for saying so, Mr. Steele, I thought that the attitude of my hon. Friends to the saving movement was relevant to the Amendment, but I will not pursue the point. I will not rise to any bait. I was merely commenting that I am sure that the opinions of my hon. Friends are not fundamentally different from my own on this matter. No doubt in one way or another they keep in mind the welfare of the same people as I have in mind.
The question which arises here causes difficult problems. I think that if the Amendment is carried nobody will invest in anything but investment trusts or unit trusts. If the Amendment is not carried, various almost insuperable difficulties will face the unit trusts and grave penalties will be inflicted on their members in the way of double taxation. I am sorry to be a little lengthy about this, but I must pause on the point of double taxation. First, a unit trust is nothing more or less than a partnership of people gathered together for convenience and safety to invest their money. I am not talking about charities, with which we dealt in a previous Clause. That was a totally different matter. A unit trust, as opposed to an investment trust, with which I was concerned on a previous Amendment in relation to charities, is a partnership.

Mr. Heath: The hon. Member cannot get away with that. On the Amendment dealing with charities we were dealing with both investment and unit trusts. He then argued that there was a complete division between the corporation and the members who were shareholders or unit holders in it. I am much attracted by his present approach, but I wish he had adopted it two Amendments ago.

Mr. Lever: I should be out of order to recapitulate in simple terms the complex argument on which I addressed the Committee. I very much regret that we do not have these debates upstairs. I wish that we had a Finance Bill, on the one hand, to raise revenue and also a Tax Bill which would decide these complex and highly technical matters after discussion in a small Committee upstairs. We should all have gained a lot, not merely in terms of sleep, but in terms of accuracy of discussion and constructiveness of argument.
9.15 p.m.
I took the view that in assessing the right tax to pay, where tax is to be paid—we are not discussing concessions made by the State to charity; we are talking about the right basis of tax for a unit trust holder—people should pay as individuals and that the 35–30 gap should be closed in so far as it is in the power of the Treasury to close it, because this is much more in the nature of a partnership than a company. The idea that there is not double taxation because capital gains in a unit trust become subject to Corporation Tax and not to Capital Gains Tax is too reminiscent of the famous conundrum about how many legs has a dog if one calls its tail a leg. The answer is not five, because calling its tail a leg does not make it one, and calling a company's gain a Corporation Tax gain does not help the argument. Thirty per cent. or the personal rate of the unit trust holder, in so far as it is possible to achieve it, should be the basis on which the Treasury should act.
I wish to say a few more words on this question of unit trusts and investment trusts. I am very sympathetic about the question of fairness as between one investor and another, but there is a fundamental point of grave importance to us all, and it is this. When we introduce a new form of taxation, it does not com-

mend itself to me as a welcome form if one of the inevitable consequences is the destruction of a system of investing which has been established in the City of London, skilfully managed and honourably and honestly undertaken. If this tax were inevitably to penalise unit and investment trusts, which I do not believe is the case, and cause their destruction in the long run, I would say that that was an insuperable objection to having the tax, because it is not for the Labour Government, or any political party, to specify to investors the mechanism by which they will invest. All parties should be entirely neutral on this. One can take the view that nobody should be entitled to invest, but once we concede the right to invest we must do nothing through the tax system to interfere with the best mechanisms to investment. It is not possible always to achieve perfection in this regard, but to achieve the destruction of the great city institutions would be a disaster, and it could not be countenanced.
I hope that the Chief Secretary will bear in mind in all these negotiations that we on this side of the Committee are entirely neutral about how a man invests his money. If he chooses to invest it in investment or unit trusts, we should do nothing in our taxation system which prevents or discourages him from or penalises him in doing so.

Mr. Heath: I have been following the hon. Gentleman's argument with the greatest interest. He says that nothing should be done to discriminate against them. Is he suggesting, for example, that the investment trust and the unit trust should pay Capital Gains Tax, if they are to pay it, at the personal rate and not at the Corporation Tax rate? That would be one way to remove discrimination. I do not know whether his argument is leading that way. He did not follow his argument logically to a conclusion, but if he does he will have to take it further. The majority of holders in unit trusts are at an income level at which they would take advantage of the two-thirds option as it is to be amended by the Government and the rate would be still lower than 30 per cent.

Mr. Lever: I have said that the counsel of perfection is that the Government should, in operating the tax, secure that


the unit trust holder is no worse off than if he held that bundle or group of shares in his own name instead of through a unit trust. That is the guiding principle which the Government should bear in mind. I do not know to a dot and comma that it is always possible to carry that principle into practice, but if it is to be substantially departed from that is not an argument against the unit or investment trust; it would be an argument against the form of taxation concerned. If it is to be said that it is inconsistent with the preservation of these highly developed and well recognised existing institutions for saving, this is not an argument against those institutions; it is an argument against this form of tax. But I do not believe that, given good will and acceptance of the principle I have outlined, such incompatibility exists, and neither do I believe that it is beyond the wit of the Treasury to make the concessions required to allow these institutions to carry on.
Although it may seem somewhat unusual, coming from this side of the Committee, I cherish all the national assets of this country, including the City of London. I know of no country in the world which has a comparable organisation of the austere integrity and reputation of the City of London and its institutions. I am sure that a Labour Government will be a beneficiary of those institutions as much as a Conservative Government. The over-sea investments and the other mighty connections of the City are not held back from the Labour movement or a Labour Government. We must, therefore, prize the organisations which brought them into being as much as any party in the State, and we should do nothing to bring them down or do them injury. I know of nothing in the objectives of my party and Government or in the ideals which I have served all my political life which causes me to want to cast away or do injury to institutions and a reputation which are the envy of the entire world.

Mr. Gresham Cooke: I listened carefully to the concession made by the Chief Secretary, but, as far as I can see, it does not apply to the investment trust.

Mr. Diamond: The concession applies equally to the unit trust and to the investment trust. I pointed out that there is an administrative problem in relation to

unit trusts which applies less or is non-existent in relation to investment trusts, but the concession affects both equally.

Mr. Gresham Cooke: I am glad to hear that. The hon. Gentleman emphasised the unit trust so much in explaining the concession that I thought that it did not apply to investment trusts.
It appeared to me that the concession would help the unit trust which was declining or coming towards the end of its life, that it would assist the unit trust with a small number of investors but it would not help the unit trust which was growing, with a greater number of buyers and sellers. Perhaps the hon. Gentleman will consider this point, because we shall have to think about the whole matter before Report to see whether we can have a concession which will help all unit and investment trusts.
What the hon. Gentleman has said does not get over the fundamental point that if a small investor puts his £100 or £50 into I.C.I. and keeps it there for 30 years, he does not have to pay Capital Gains Tax until he sells his I.C.I. shares, however much I.C.I. may increase in one way or another, selling one factory, buying another, and so on, The investor who goes into a unit or investment trust, on the other hand, is hit in three ways. He is hit by the effect of the Corporation Tax, which will prevent industrial companies from distributing so much as previously. He is hit by the possibility of a unit or investment trust having overseas shares. He is hit by Capital Gains Tax being levied on the investment or unit trust in its ordinary day-to-day operations.
The Corporation Tax rate of gains tax, as it were, is bound to be larger than the marginal rate which the ordinary small investor will pay. I cannot see why the Government cannot accept the practice in America, that is, to assess the holder of unit and investment trust shares at the time when he sells his units or holdings. I am sorry that the President of the Board of Trade is not here, though he did look in on our debate a little earlier. For many years, he has been advocating, in the columns of the Daily Herald and in articles elsewhere, that people should invest through unit trusts and that this is the ideal thing for the small investor.


Now his Government are attacking it in this very special way.
The Amendments ought to be considered a little more seriously. The concessions which we have had are not, in my view, good enough for these investors. I would urge my right hon. Friends on the Front Bench to put down another Amendment on Report so as to bring out the valuable services which are performed by these trusts and their investors whom the Government are still getting at, despite the concessions which have been made. In the circumstances, I do not feel satisfied that these concessions are good enough for the holders in unit and investment trusts.

Sir R. Thompson: I intervene very briefly to support my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) in the reasons he advanced in support of his Amendment, No. 45. Since those arguments were adduced we have had an intervention from the Chief Secretary, to whom I listened with a great deal of care, but at the end of his painstaking speech I found myself in as much of a fog about his intentions as I was beforehand. The only encouraging thing which I can draw from his remarks is, as I understand it, that the kind of compromise he will put before us at a later stage of the Bill is one which the unit trust movement is ready to support. That seems to me to be a thing in its favour and it indicates to me that the Government are beginning to realise the drastic nature of the attack on the small investor which is implied in the Bill.
Prior to the hon. Member's remarks I felt very much disposed to agree with my right hon. and learned Friend, who took the view, which I support, that this Clause and this very long Bill are all part of the general assault on personal savings and personal independence which are so detestable to Socialist theory as a whole. It seems to me particularly atrocious that it is mainly the equity shareholder who suffers under this attack, the man whom the Government, in another dress, are supposed to be encouraging. He is the risk taker, the man who pays the tax on profits out of which preference dividends are paid. He is the man who suffers under the provisions of the Bill.
I am very glad indeed to see that the Chief Secretary is beginning to realise that the Government are being very wrong here. I was encouraged by the support which those of us who, on this side of the Committee, take this view had in the speech of the hon. Member for West Stirlingshire (Mr. W. Baxter), who, I thought, was very reasonable. He also was breaking a lance for the small investor. He said that he had no personal interest in this at all. I suppose it would only be fair for me to say that I have a small interest. I have a few hundred shares in an investment trust.
I suppose that, in the present climate of opinion, although practically every hon. Member in the Committee probably has an interest, directly or indirectly, I should be much better advised not to have any investment of that kind, but to put any surplus income I may have into the pools or bingo parlours, something of that kind, because under the Bill that is the kind of expenditure or investment the proceeds of which are tax-free. But, like millions of others, I have tried to put a little money by, managed by people much more competent than I to manage it. I am very glad to see that hon. Members opposite are also beginning to realise that the Bill as it stands is a great assault on the small saver and private investor.
I was very glad to hear the speech of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), because it seemed to me that even a man of his great financial experience and expertise was at issue with his Front Bench. He was not entirely satisfied by any manner of means—and nor am I—that there was not an element of double taxation of the small investor involved in the provisions of the Bill.
Although I have the gravest misgivings about the Clause, we ought to see the Chancellor's further proposals on Report, because if they have the support of the Wider Share Ownership movement they are worth our consideration. I hope that he will come to the House at a later stage of the Bill and spell these out in greater detail, so that we can give them our careful consideration. I hope that when he does that he will make it clear that the thing which worries and bothers most of us, that is, the element of double taxation,


which I confess I did not find removed by what the Chief Secretary said a few minutes ago, has been removed.
9.30 p.m.
As I have said, the Clause hits the small investor, whom everybody is supposed to be in favour of, brutally hard. It is all part of a pattern of flattening them out, which we have seen in other provisions of the Bill. We had it on the business expenses, which did not matter for the grouse moor man, but did matter for the small commercial traveller and the sales representative. We had it on the beneficial trust, which did not matter for the very big man, but mattered for the small man with a small trust which was automatically doomed to diminish in value every ten years, and now, in its present form, this assault is continued on the small investor who likes to trust experts to invest what little money he is able to save.
I think that the Committee has been unanimous in speaking up for the small man, and I hope very much that when the Chancellor produces his proposals on Report he will see that the benefit of the doubt which some of us are prepared to give him at this stage is not misplaced.

Mr. Diamond: I intervene for the second time for only a moment because I might have misunderstood what was said by the hon. Member for Twickenham (Mr. Gresham Cooke), and the last thing that I would want to do is to mislead the Committee in any way. I agree with the hon. Member for Croydon, South (Sir R. Thompson) that it is only when the Amendment is put down and it can be carefully studied that we can give it the consideration which we would all want to afford to it.
I hope that I made it clear in my original speech, when referring to the concession which had been arranged, that I was talking about taxing switching, but not taxing the reduction in the number of units. As is well known, an investment trust does not operate in this way. I do not say a run, but if there are a number of unit holders who want to be paid out the only thing the unit trust can do is to sell its investments to pay them out. There would be a net contraction at the end of the year. It is those holders who would be taxed directly, and not the trust

itself—and this is in answer to my hon. Friend—at either 30 per cent., or the two-third rate, or no tax at all, depending on their relevant personal rate.
I hope that I have made it clear to the hon. Member for Twickenham that this is not a problem with which the investment trusts are faced.

Mr. Gresham Cooke: I am obliged to the hon. Gentleman for saying that, because I thought that the concession applied only to unit trusts. I am glad that he cleared up the point, because that was the impression I had. I made the point that 50 per cent. of the Amendments applied to investment trusts.

Dame Patricia Hornsby-Smith: First, I must declare my interest in this matter, as I am the chairman of the management committee of the Western and General Unit Trust, and a modest holder in it. I am grateful to the Chief Secretary for at any rate giving us some hope of a rearrangement or concession on Report. I do not wish to detain the Committee for long, but I must point out that the hon. Gentleman was not quite specific enough to assure us that double taxation will be avoided. This is a rare but happy occasion, on which I find myself following the line of argument put forward both by my hon. Friend the Member for Shipley (Mr. Hirst) and the hon. Member for Manchester, Cheetham (Mr. Harold Lever).
I want to put one question directly to the Chief Secretary. As the Bill is now drafted, I understand that a person with an income of £1,000 a year who saves modestly £50 or £100 a year through a unit trust will, on every £1 of realised income from those savings, pay more in tax than will a man with £100,000 who invests directly through the Stock Exchange and makes £50,000 a year. Pound for pound of realised income, the direct investor will pay less tax, however wealthy he may be, than will the holder in a unit trust.
I know that these figures have been given to the Treasury by the deputation from the Unit Trust Association, and I feel very strongly that we should have an assurance that the situation will be met, and that the direct investor will not be left with more after paying tax


than will the unit trust holder who, overall, is a very modest investor. The hon. Member has pointed out that he passionately wants to do everything that he can to protect savings. I am sure that that is so; it has been the wish of every Chancellor of the Exchequer, of whatever party.
But why complain because the unit trust holder does not panic and does not keep putting in and taking out his units? He may leave his units in for some years before he realises them. Why should he not then be asked to pay tax on his capital gains? The hon. Member suggests that the method used will be a simple one. Surely any pre-taxation of a trust, whether it is on capital gains or not, will produce a ridiculous situation in the day-to-day price of units. At the moment unit trusts are controlled by the Board of Trade; their values are scrupulously worked out by computers every day. Every unit trust holder knows at any time of any day what his unit is worth, and it is a fair, accurate and just price.
If we are going to make unit trusts pay capital gains they can do one of two things. They can either accrue the contingent liability for tax on capital gains and reduce the unit by a proportionate amount or take no account of liability for tax until the capital gains are realised and then slash the units. Whichever way they operate it will be unfair. I am not satisfied that the Chief Secretary has given us any assurance that these anomalies will not arise and destroy the true value of the unit, making it cheaper for the buyer at one moment and dearer for him at another. We want a little more assurance that he has gone further than I suspect is the case from what he said tonight to meet the very real complaint of the small investors in unit trusts. The average amount invested is only £334, but the holders are to pay a higher rate of tax than the wealthy man who gambles on the Stock Exchange.

Mr. Geoffrey Lloyd: Earlier the Chief Secretary gave the impression—I may be mistaken—that investment trusts were included in the concession which he had arranged with the unit trusts. I think that recently the hon. Gentleman has corrected that impression. I have consulted

the Association of Investment Trusts since his speech and find that it has not been consulted about any such arrangement. It would be useless to investment trusts, because their problem is different. The Chief Secretary seemed to imply that they had no administrative problem, but we do not think that is so.
Broadly speaking, investors in investment trusts are insurance companies and pension trusts—the large institutional investors—on the one hand and the small individual investor on the other. Large private investors do not usually invest in investment trusts for whatever the reason. We know from our records that it is the small investor and the big institution whose investments are made in investment trusts. I suggest that there is no administrative problem from the point of view of the big institution, but with the small investors it is a different matter. They are literally small investors; very often they are widows. It is no use for hon. Members opposite to laugh about this. We have had too many indications that this is so.
These investors have to be looked after to ensure that they claim their dividends and any bonuses that may be issued, and to ensure that they get their rights, because many of them are unaccustomed to any kind of complicated business dealings. We are anxious about the certificates which will have to be issued every year, and conceivably more often than that. We feel that many investors will not have kept records and it will be very difficult for them. They do not have access to skilled accountancy advice as does the larger investor. We anticipate that there will be a good deal of trouble and difficulty for the small investor if the Government scheme goes through. The difficulty could be solved by the acceptance of the Amendment, and this would result in the elimination of the slips of paper and the need to issue them continuously.
Some of the slips of paper and certificates will relate to absurdly small amounts. The capital gains realised in respect of investment trusts are small. Normally the trusts do not seek to make a capital gain, and any gain realised arises incidentally in the course of the redisposing of assets in the best way to increase the income of the trust. The small investors will not get much capital gain. I am advised that some certificates


may relate to a fraction of a penny or some figure which is quite derisory. Yet this enormous machine, both from the point of view of the Revenue and the investment trust companies, will be invoked.
I wish to remind the Committee of our discussions earlier about charities and to indicate that the whole of that problem would be solved instantly by the acceptance of this Amendment. Hon. Members on this side of the Committee consider that the Government have not done justice to this considerable investment movement which really represents collected investments. We feel that they have made it more difficult for the small man to take advantage of this movement, which was started not in England, not in the City, but in Dundee, 100 years ago, after a jute boom. The canny Scots were looking round to see where they should put their money and they saw good benefits in the railways to open up the great wheat fields of America. They invested in them and got a good return.
Starting as a simple trust, they were then converted into trust companies. From this basis they have reached their present large size, and they are much larger than the much better known and more recent unit trust movement, but they have not been growing so rapidly recently. They have hundreds of thousands of very small investors. We do not think that the Government have done justice to them. We hope that they may reconsider their attitude, either from the point of view of what we have discussed tonight—or possibly the rate—between now and Report.

9.45 p.m.

Mr. Heath: When I moved the Amendment, I said that I thought that it would be an important debate, and I think that it has been one of great significance. When the Chief Secretary and his colleagues on the Front Bench are considering the matters raised tonight, I hope that they will give careful consideration to the wide number of points which have been made by my hon. and right hon. Friends and the very powerful plea made by the hon. Member for Manchester, Cheetham (Mr. Harold Lever). I hope that the Chief Secretary will consider all this when he is defining his own scheme in the Amendment which

he is to put down. He began by saying that his own position was perfectly clear. He said that he would do everything possible to encourage savings. I interpreted this when I was putting forward the same view as being to encourage small savings particularly.
I think that the balance which has been struck by the Chief Secretary tends towards the wrong side. If anything, the balance ought to be more towards the small saver in the unit trust and the investment trust, rather than the way in which it is at the moment. The Chief Secretary emphasised that the small saver has the advantage of wise management and that therefore he must expect certain disadvantages under which the investment and unit trusts appear to be in the present Bill.
Of course, the small saver is paying for this management in the administrative expenses of the unit or investment trust, which have to be met by both out of their income. In that way alone, he is compensating for the wise management and advice which he gets, as shown through the operation of the investment trust or unit trust. I do not believe, therefore, that there ought to be compensating disadvantages to the detriment of the small saver. Therefore, I am particularly in agreement with what the hon. Member for Cheetham said about trying to get the best possible balance. If anything, I think that the balance ought to be tipped on the small saver's side.
The Chief Secretary said that he has discussed this with the Association of Unit Trust Managers, and that he proposes to put down an Amendment with that aim. I think that he will agree that both investment and unit trusts wish to be exempt from the Capital Gains Tax and want the tax to fall on the holder of the shares or units. That was their first position, which they put to him and his colleagues. Having failed to secure the first position in their discussions, they have moved on to other schemes, one of which the Chief Secretary will follow in his Amendment.
My first reaction is that this does nothing to help the investment trusts, though it helps the unit trust from the point of view of withdrawal of units. It still leaves a problem—which I think we must discuss when we see the Chief


Secretary's proposal in detail—of maintaining an equality between those buying units and those retaining them. That problem remains.
At the same time, we must look at the scheme which is put down and which the Chief Secretary has described. I must confess that I am beginning to feel somewhat unhappy about the "halfway houses" which the Chief Secretary manages to reach in our discussions. Our experience of past halfway houses has been that they breach a principle which he has said is absolutely inviolable and usually produce an administrative position which is difficult to maintain and a whole series of fresh anomalies which cause a tremendous amount of irritation for everyone concerned. I hope that he will understand my saying that I shall approach the wording on the Order Paper with some trepidation. Nevertheless, the Committee is in a difficulty, because it has not seen this new proposal in detail and wishes to consider it.
I should like to maintain our position in principle—that we believe that these bodies should be exempt from Capital Gains Tax—and to assure him that we shall give the fullest consideration to the Amendment which he puts down. In the meantime, I should like to withdraw our Amendment so that we may consider his more fully when he puts it down and return to our own position if we deem it necessary or advisable when the time comes. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Lubbock: I beg to move Amendment No. 47, in page 40, line 5, to leave out "unit trust or investment trust" and to insert "company".
It has been accepted on both sides of the Committee that double taxation of capital gains is abhorrent and that we should try to avoid it wherever possible. I am seeking to develop that point of view. I should like to make it clear that the word "company" includes, of course, investment and unit trusts. What I am seeking to do is to apply the provisions of Clauses 34 and 63 and paragraph 4 of Schedule 6 to all companies and not only to investment and unit trusts.
Under this provision, any capital gains made by a unit or investment trust are

subject to Captain Gains Tax in the hands of the trust, but when the shareholder sells his shares, if there is a capital gain on his holding, he is relieved of so much of the tax as has already been paid by the trust on his behalf on the underlying assets.
If any other type of company makes a capital gain on a trade investment or any other asset involved, this is to be taxed in the hands of the company at the Corporation Tax rate of, say, 35 per cent. and then, when the shareholder disposes of his holding, the amount which is left is to be taxed in the hands of the individual shareholder at 30 per cent.
That is to say, if the shares have appreciated by exactly the amount of the net capital gains which the company has made after deduction of the 35 per cent. Corporation Tax, in effect, the individual shareholder will pay the double Capital Gains Tax rate of 54½ per cent. This figure has been mentioned already and the Chief Secretary will know how it is contrary.
Whereas if he is being taxed at less than the standard rate the individual shareholder can opt to pay on the second tranche of this tax at two-thirds of his marginal rate of tax, he has no control over the 35 per cent., or 40 per cent., Corporation Tax which has already been paid by the company on his behalf.
I emphasise that not every small investor wants to invest through the medium of investment or unit trusts. I do not think that we have so far mentioned in these debates anything about the tremendous growth of investment clubs. The growth of this comparatively recent phenomenon is accelerating at a tremendous pace. Many groups of small investors have got together in this way—teachers, policemen, clerks and perhaps even some of the workers on the floor of the motor factory who have been mentioned by the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd), and have invested through this medium in recent years.
Quite apart from this, there are many small investors who prefer to exercise their own judgment. They enjoy studying the progress of various companies and trying to find those most successful in their own lines. We should not discourage people from doing this. Therefore,


without in any way trying to minimise the importance of investment and unit trusts, I would not like to think that these were the only medium for the small investor. We are discriminating against investors who prefer to exercise their own judgment. The Bill gives a concession to people who invest through investment and unit trusts and denies it to the small investor who puts his money into any other type of company. I fail to see the difference. I cannot see the logic in this discrimination.
There may be companies with trade investments which, from time to time, dispose of those investments and replace them with others. They will pay the Corporation Tax rate of 35 per cent. and the money will be subject to tax at the rate of 30 per cent. in the hands of the shareholder. I urge the Chief Secretary to think again on this issue.

Mr. Diamond: I readily respond to the request of the hon. Member for Orpington (Mr. Lubbock) to think again on this issue, but I am bound to tell him that I have given the matter a considerable amount of thought already. I did not find that his arguments broke new ground. Indeed, he said what I expected him to say. I would, therefore, be misleading him if he thought that further consideration would lead to a different course of action.
The hon. Gentleman asked why we differentiate between a unit trust and an ordinary company. That has been the whole basis of the discussion we have only just completed. It has been made clear, and the Government accept, that up to a point the unit trust is a sort of alter ego of the individual—a machinery by which an investment is made for him—and although one cannot go the whole way and treat it as a complete agent of the investor, it is a very different relationship from an investment in an ordinary company direct.
Moreover, there is this real difference. Whereas in a unit trust the value of the unit represents most accurately the value of the underlying assets, and whereas in an investment trust the value of the share represent quite accurately the value of the underlying assets, in regard to an ordinary trading company the valuation of the

shares has at times a close reference and at other times no close reference at all to the value of the underlying assets. The value of the shares depends entirely on different considerations, as the hon. Member for Orpington will know, and an increase in dividend will put up the value of the shares without a single asset changing hands or being altered.
I come to the next stage, which is to repeat that the Corporation Tax is a tax on corporations. As a corporation makes profits, be they drawn from income or capital, it makes gains on which it pays Corporation Tax. That is a separate thing from the tax paid by the individual. For example, a corporation will pay tax on its profits. On the remainder of its profits, which are distributed to shareholders, the shareholder will pay Income Tax—quite a separate thing—and the tax which the corporation bears is borne on profits which derive from either or both sources. The function of a company is to make profits, and whether it makes them from capital or income sources is irrelevant to this issue. Thus, the same differentiation applies to Income Tax paid by the shareholder as to Capital Gains Tax paid by the shareholder. These are totally different issues and just as in one case the shareholder pays Income Tax so in the second case the shareholder pays Capital Gains Tax.

10.0 p.m.

Mr. Lubbock: The right hon. Gentleman will realise that it is not an irrelevant distinction from the accounting point of view and in the case of the disposal of an asset this would be placed to capital reserves and not be available for distribution to the shareholders.

Mr. Diamond: Whether it is available to the shareholders depends on a lot of other issues, as the hon. Gentleman knows. It very often is distributed to shareholders as a capital dividend. It is not a question of accounting but of company law, and I agree that, as there are very good reasons for protecting creditors, capital must remain intact and it cannot be distributed.
We are talking about capital gains. I hope I have made it clear that, although I am only too glad to look at what the hon. Gentleman has said and read it once more in HANSARD, I do not feel I can offer him much hope.

Mr. George Y. Mackie: I should like to point out the difference between the Liberal proposal on Corporation Tax and the idea behind the Government's proposals on Corporation Tax. Our taxation committee proposed a Corporation Tax—

The Chairman: Order. The hon. Gentleman will have his chance to develop that at a later stage of the Committee's proceedings, but not at this moment.

Mr. Mackie: I accept that, Dr. King. With regard to the Captain Gains Tax the distinction which the right hon. Gentleman is making is completely false, because shareholders cannot be divorced from the company. It is one thing to tax the company on a simple form, but it is another thing to lay down as a principle, which is what the hon. Gentleman is doing, that a company is entirely divorced from shareholders. This cannot be done.

Mr. Peter Walker: I should like to emphasise the point made by the hon. Gentleman the Member for Orpington (Mr. Lubbock) as to the hardship caused by this Clause in relation to double taxation. I have already quoted the example of the company in which two shops were owned as opposed to the individual owning two shops. If a person owns two grocery shops through a limited company and disposes of one of these shops then subsequently the whole business of the shop he first disposed of, he will pay a total of 54½ per cent. Capital Gains Tax. There are a very large number of small businesses run on this basis throughout the country. I am sorry that the Chief Secretary has not thought again since our earlier debate on this topic. I ask him to recognise that there is real anxiety on both sides of the Committee that some people will be taxed at 54½ per cent. and others at 30 per cent.

Amendment negatived.

Mr. Peter Walker: I beg to move Amendment No. 235, in page 40, to leave out line 12 and to insert
This section and section 63 of this Act apply to an".

The Chairman: With this Amendment we will take Amendment No. 236, in page 40, line 13, leave out "means" and insert "which".

Amendment No. 237, in page 40, line 13, leave out "a company" and insert "is".

Amendment No. 238, in page 40, line 19, leave out "ten" and insert "twenty-five".

Amendment No. 239, in page 40, line 19, leave out "value" and insert "cost".

Amendment No. 240, in page 40, line 22, after "company", insert
(not being a company whose income is derived wholly or mainly from shares or securities)".

Amendment No. 241, in page 40, leave out lines 23 to 28 and add:
(c) that it is a company (other than a close company (as defined in paragraph 1 of Schedule 17 to this Act)) whose shares are quoted on a recognised stock exchange (as defined in Part IV of this Act); and
(d) that the distribution as dividend of surpluses arising from the realisation of investments is prohibited by the company's articles of Association; and
(e) that the company does not retain more than ten per cent. of the income it derives from its shares and securities but for the purpose of this calculation any amount not capable of being distributed as dividend by reason of the prohibition referred to in the last foregoing paragraph shall be ignored.

Amendment No. 262, in page 40, line 22, after "company", insert
not being itself an Investment Trust or Authorised Unit Trust".

Amendment No. 52, in page 40, line 23, leave out paragraph (c).

Mr. Walker: The purpose of this Amendment, which is directly related to a number of other Amendments which you were kind enough to call with it, Dr. King, is to clarify and improve the definition provided for investment trusts. On a careful examination of the provisions made in Clause 34 in defining investment trusts which will receive the treatment appropriate to this Clause, we discovered that almost every investment trust in the country would be excluded from the provisions of the Clause. Therefore, we have set about, by means of this Amendment, to put forward another definition which we hope will be acceptable to the Committee.
Amendments Nos. 235, 236 and 237 are purely minor matters of wording which, we think, improve the first part of the subsection, but Amendment No. 238 is a departure from the general definition. Here we suggest that the figure


should be increased from 10 per cent. to 25 per cent. That is exactly the position in the United States, where there is a very developed investment trust movement and where the provision is for 25 per cent. and 10 per cent. I think that careful examination will show this to be a not unreasonable figure for these particular types of investment trust.
Amendment No. 239 is very important, because it seeks to substitute the word "cost" for the word "value". We believe that the use of "value" would put managers of an investment trust into an impossible position because the investment trust may invest in a particular security which at the time of the investment may be worth less than 10 per cent. or 25 per cent., whichever the case may be, of the total investment trust.
If the security then rises in value the percentage laid down may be exceeded. That would mean that a rise in a particular security could suddenly make an investment trust no longer able to benefit from the various provisions of Clause 34. I think that the Committee will recognise that, from the practical point of view, it is important that we use the word "cost" and not "value".
Amendment No. 240 would enable a company to invest through a subsidiary company which was primarily concerned with investments or to invest in another investment trust. That frequently happens in the investment trust movement and I do not think that it in any way detracts from the wishes of the Government when they were framing these Clauses of the Bill.
We feel that Amendment No. 241 would provide a much better and wider definition of investment trust companies which will continue to be included in the provisions of the Clause. Unless this Amendment is accepted, a very large number of genuine investment trusts in the true spirit and meaning of both sides of the Committee would be excluded from the provisions of the Clause. We have laid down very careful limitations. This is not an attempt to allow certain companies which are not genuinely investment trusts companies to take advantage of the Clause, but an attempt

so to define an investment trust as to bring the great majority of genuine investment trusts within the provisions of the Clause.
I hope that the Government will feel that these Amendments have been tabled in that spirit, and will find them acceptable.

Mr. MacDermot: I say at once that I entirely accept what the hon. Member for Worcester (Mr. Peter Walker) has said about the spirit in which he has moved this Amendment, which deals, as does the whole group of Amendments, with the question of what should be the criteria for determining what is an investment trust for the purposes of the Clause.
I should like briefly to explain our objective in laying down the criteria in the Bill. It is to distinguish the genuinely public investment trust, in respect of which the relief under the Clause is intended, from the investment trust company which is under private control and which is, in substance, no more than a company designed to hold the private fortune of a family group; for example, the shares of a family company in which a large number of members of the family are interested.
The provisions of the Bill are modelled—I do not say that they follow precisely—on criteria which have been operated under American law for some time. It was never our intention to give relief from double taxation for companies which did not fall within the general objective of the criteria that we laid down.
For the most part, the Amendments put forward proposals which have been made by the Association of Investment Trusts. There has already been reference in the Press to the fact that my right hon. Friend received a deputation from it. I was present at the meeting. We agreed that the meeting should be followed by discussions with the Association to try to work out an acceptable definition. Our consideration of these matters is not quite complete yet, but I think I can go a good way to indicate to the Committee our approach to the Amendments. It will probably be convenient if I take them in turn, as the hon. Gentleman did. The first three, as he said, are really drafting


Amendments, and I need not spend time on them.
The first two Amendments of substance are No. 238 and No. 239, which propose to alter subsection (2,b) so that, instead of referring to trusts not more than 10 per cent. by value of whose investments or securities are in any one company, it will refer to trusts not more than 25 per cent. by cost of whose investments consist of such shares or securities. I will take these in turn and deal with No. 239 first. With regard to the proposal to substitute "cost" for "value", the argument is, as the hon. Gentleman made the point, that one may get a situation where a trust which at one time qualified finds itself disqualified because a particular share in its holdings has increased relatively in value compared with the other holdings. Obviously, that is a forceful and understandable argument. This is looking particularly, as it were, to future movements in share value.
The argument the other way is to look at what has happened in the past, to look at the time when particular shares were purchased by the investment trusts. It may seem illogical that their qualification or non-qualification should depend on the particular moment when they acquired a certain group of shares. One might theoretically, if one adopted the Amendment, get a situation where one had two investment trusts with exactly the same portfolios, and one would qualify and the other would not because of the time when they purchased particular shares. However, perhaps that is a situation which is less likely to occur, and I concede that there is obviously force in the argument put forward.
With regard to the substitution of 25 per cent. for 10 per cent., we think that the figure of 25 per cent. may be somewhat high. The purpose of an investment trust is to spread its portfolio as widely as it can and to spread the risk, and a holding of 25 per cent. in one company would seem rather unusual and due to special circumstances, or inconsistent with the general objectives of trust companies. But it has been put to us—again, the point was made by the hon. Gentleman—that the American code provides for a 25 per cent. holding, though it is right to say that this is related to a test by value and not by cost. I put it to the

Committee that we see the force of these arguments. We should like to look sympathetically at the two Amendments and try to find, as a result of further discussion with the Association, a reasonable and acceptable solution. We obviously would not take a test which would result in the exclusion of a very large number of investment trusts which are clearly within the general principle which I stated at the outset.
Amendments No. 240 and No. 262 would, as the hon. Gentleman said, both have the effect that an investment trust would be able to qualify for authorisation although the whole of its portfolio consisted of shares in another investment trust or unit trust company. I would make it perfectly clear that we have no objection in principle to this and will also view these Amendments sympathetically.
I will also state our attitude to Amendment No. 52, which proposes to delete paragraph (c) from subsection (2). This would have two effects. One would be to remove the requirement that it should not be under the control of fewer than 50 persons. I will come to that point in a moment when dealing with the next Amendment, but I think we can meet that point. However, it would also mean getting rid of the requirement that the investment trust must be one in which the public are substantially interested. Clearly, that is a requirement which must be retained. Therefore, we could not accept that Amendment as it stands.
10.15 p.m.
But we can accept the main point in dealing with Amendment No. 241. This proposes that, instead of the test of control by not less than 50 persons, in order to qualify for authorisation a trust should be a quoted company and not a close company and that it should distribute at least 10 per cent. of the income which it derives from its shares and securities, leaving out of account for this purpose any surpluses from the realisation of investments which it is prohibited from distributing by its articles of association. Given the definitions which there are in Schedule 17 of "close company", "control" and "associate", these proposals seem to us in general to be reasonable.
However, there are two particular points that we would like to look at


further in this connection. The first is whether the stipulation that the shares of the company must be quoted on a recognised Stock Exchange is sufficiently reliable. We should like to check what are the minimum requirements of Provincial stock exchanges before a quotation can be obtained. Secondly, we think that there might be virtue in including a further test that not more than 10 per cent. of the shares of the investment trust company should be in the hands of any person other than a person which is in itself an authorised investment trust company. It seems to me that, subject to those two points, the proposed criteria are sensible.
We do not dissent from the main principles underlying the Amendment. Taking the Amendments as a group, we are generally sympathetic to them. We have reservations on one or two points, most of which I have indicated. Subject to further consideration of these matters and perhaps further discussions with the Association, we shall be glad to bring forward an Amendment on Report which we hope will be acceptable.

Mr. Harold Lever: Before he sits down, would my hon. and learned Friend tell me what the Government have in mind in having restrictions upon investment trusts and what would be lost to the Government if they did not have these restrictions—except the right to collect double tax on capital gains? He said that these restrictions are useful. By which criteria does he say that they are reasonable or unreasonable? By what purpose are the Government moved in putting on these restrictions?

Mr. Grimond: I do not want to deprive the Financial Secretary of an opportunity to answer that question.

Sir D. Glover: He does not know the answer.

Mr. Grimond: Perhaps I may apologise for having missed the opening moments of the debate. I was summoned from the Committee, and if I make points which have already been made, I apologise. I am grateful to the Financial Secretary for the general tenor of his speech. I understand that on Report he will meet most of the points in principle, with the exception of those in Amendment No. 52.
May I put to him briefly a point concerning Amendments No. 238 and 239? He said that he would look at the requirement about 10 per cent. in value of the holdings being in one company. If he looks at the holdings of investment trusts he will see that this requirement would rule out most existing trusts. Many hold from 12 per cent. to 15 per cent. in a particular share, and it is not unreasonable that this should be so if it is a good investment; that is exactly why the investment trusts exist.
It seems to me that the idea of spread can be exaggerated. What the investor in a trust wants is to have the advantage of expert management. The bulk of the trust funds may well be in certain companies and not necessarily spread throughout the whole of industry merely for the sake of spread.
It seems to me highly undesirable that an investment trust should be forced, perhaps at a most inconvenient moment, to realise some of its holdings simply because it has more than 10 per cent. in one company. I am grateful to the Financial Secretary for saying that he will look at this point, increase the level and take into account the Amendment which suggests that it should be cost rather than value which counts.
There are a number of specialised trusts which deliberately confine their investment to a fairly narrow range of companies—for instance, trusts which invest in the electronics industry. This seems to me to be a very reasonable development of the investment trust movement, because it is often in the newer industries concerned with electronics and nuclear power that the small investor has the greatest difficulty in knowing which companies are best. But it limits the spread of trust. I hope that when the Financial Secretary is considering the Amendment which he will put down on Report he will bear this matter in mind and bear in mind the position of these rather specialised trusts with their more limited field of investment. I hope that he recognises that they have a part to play and that he will take them into account when he drafts the Amendment.

Mr. John M. Temple: I am sure that the whole Committee is extremely obliged to the Financial Secretary for his very expansive statement.
The investment trust movement is an important movement, particularly to the small investor.
I wish to raise with him a point about Amendment No. 241, concerned with the criteria for disbarment of an investment trust if it can pass on its capital gains in a special form to the investors themselves. If the Bill had been enacted in the form in which it was drawn, it would have meant that investment trusts would have slipped in and out of the investment trust category. It is very important when the new criteria are being considered that they are drawn extremely widely, because the worst thing which could happen to the investment trust movement would be that an investor should invest in particular shares of an investment trust in the belief that the trust would be able to pass on its capital gains to the investor only to find that, owing to the criteria as to the value of some particular investment or the fact that there were fewer than 50 people actually controlling the trust, the trust had fallen out of what I call the favoured category.
This is extremely important, and I very much hope that when we see the Amendment on Report we shall find that the criteria of the investment trust will be drawn on a much wider basis so that investment trust managers may have confidence in the fact that the trust will continue to be in the form which will be extremely useful to investors.

Sir D. Glover: I do not think that my hon. Friend the Member for the City of Chester (Mr. Temple), who has just congratulated the Minister, is "on the ball", because the concessions which the Minister has given on these Amendments are an illustration of the appalling inefficiency of the Government in producing the Bill as it was. When the Government say, "We will look into this, that and the other", it creates the impression that they did not know what they were doing and had not any appreciation of what would be the result of the Bill. This is another example of Government inefficiency.
We are dealing with a very difficult problem which many people do not understand. Suppose that I were to decide

to place my money in the hands of a group of people who would invest it in a category laid down by the articles of association of that trust to the best advantage of the investors. What the Government are saying in this Clause, even with the acceptance of the Amendments which they say they will accept, is, "Although it may be the view of the directors of this investment trust that all the money should be put into X company, if they did that they would be breaking the law as laid down in the Finance Bill".
The right hon. Member for Orkney and Shetland (Mr. Grimond) talked about investment trusts which were mostly concerned with electrical companies. Others are concerned with oil. The Government say that the expert knowledge of the directors of investment trusts must not be used and that if it is they will incur penalties. They say that the directors must not invest their liquid funds in company X because if they do they will be breaking the Clause and will incur penalties. They are, therefore, obstructing the judgment of the directors of investment trusts to work in what they consider the best interests of the shareholders of the trust.
What appalls me as we go on with the Bill, and even when the Government accept Amendments, is that they do not know the repercussions of what they are proposing in the Bill. They are saying, "We propose to put a premium on mediocrity". This "dynamic" Government propose to put a premium on the conformer. They say, "The careful man who does not take a chance and who puts 5 per cent. of his money in each of 20 companies is a much sounder citizen than the entrepreneur who puts all his money in one company because that is the company which will grow".
I understood that the Labour Party was returned to power on the understanding that it would create a dynamic society and clear the decks for action. This is a safety first Clause which says that people should never take a chance and that if they do they have to pay the penalty. Is this the sort of atmosphere in which to build up a dynamic society? I am sure that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) goes some way with me


in this. The Clause inhibits the sound judgment of people who are in charge of investment trust funds.
10.30 p.m.
If that is true in the case of the investment trust, how much more true is it in the case of the unit trust. In an investment trust, there may be a group of, say, five solid financiers who get together and decide to put their money into this or that company or investment. I give the hon. Gentleman that argument, but, in the case of the unit trust, what is the difference? It is said that unit trusts must do the same. A unit trust is made up, perhaps, of 100,000 people none of whom has £1,000. The average holding is about £100. Why have they invested in a unit trust? They have done so because they realise that they themselves could not make a sound judgment on their investment, and they are prepared to hand over their £100, £250 or £500 to those who, they think, have the knowledge to do their investing on their behalf.

Mr. MacDermot: The Amendments we are discussing deal only with investment trusts, not with unit trusts.

Sir D. Glover: I accept that. Perhaps as a result of the hon. and learned Gentleman's intervention, I may be able to speak later in the debate on unit trusts.
But the argument still applies to investment trusts. The Government are putting a premium on inefficiency, not efficiency. I should never be invited to be a director of an investment trust, but, for the sake of illustration, let us imagine that the hon. Member for Cheetham and I were members of a board, considering our investment policy. We might decide at one stage that we would like to invest more than a given percentage in a particular share, but, if we did that, we should lose all the advantage. We are not allowed to do that. We must spread our investments. Therefore, we are forced by the Government to put our money into shares we do not think we ought to put it into. If that is not dishonest and forcing the directors of an investment trust to act dishonestly towards their investors, I should like to know what it is.

Sir L. Heald: On a point of order, Dr. King. I should like to ask for your guidance. I realise that we are not yet discussing the Question, "That the Clause stand part of the Bill," but perhaps you may be able to help us. Some of us would like to make one or two brief comments on this matter, but you may consider that it has been so discussed that to have a debate on the Question, "That the Clause stand part of the Bill," would not be appropriate.
In the circumstances, in view of the present rather unusual performance of discussing a large number of Amendments and questions at the same time, perhaps it might be in order to discuss the general principle as well.

The Chairman: I should never rule in advance on a hypothetical situation. I should warn hon. Members that if they use Amendments to make speeches which would be appropriate to the Question, "That the Clause stand part of the Bill," when the time comes to consider whether we debate that Question, the Chair's heart will be very hard.

Mr. Harold Lever: I do not want to harden the heart of the Chair by my arguments, Dr. King, and I shall, therefore, try to dispense with argument and, instead, put some questions and induce some reflections—in a neutral sense—by the Government. [Interruption.] I hear my hon. and learned Friend say that I have not had an answer to the first lot. That, surely, far from induces silence; it merely adds to inquisitiveness.
The hon. Member for Ormskirk (Sir D. Glover) has raised the horrific possibility of our sitting together on a board. I am in enough trouble already, without having that added to my difficulties. What I am really concerned to know is the thought processes behind this Clause or any other Amendments.

The Chairman: Order. It might—I only say might—be in order to discuss the thought processes behind this Clause on the Question, "That the Clause stand part of the Bill", but it certainly would not be in order at this stage.

Mr. Lever: I do not think that you heard my last words, Dr. King—"in relation to these Amendments". It seems on first sight that the Government


are making a decision in areas where without hurt to themselves they could be entirely neutral. I do not want to reecho the argument which has been made already. Perhaps I am being naive about it, but can the Government tell me why I, as a good Socialist, am becoming, as one of my hon. Friends says, a Tory, because I want a certain amount of logical explanation before I assent to legislation upon these matters?
If my hon. and learned Friend will apply his excellent mind to these points he will see that the questions I am raising are not partisan, and in no way conflict with the motivation or the purposes of my right hon. Friend, whom I am delighted to see here, and who is so unfairly used and abused by the Opposition, characteristically by "Heath's Fork"—that if they do listen to argument they are condemned for not having thought of it before, and if they refuse to listen to reason they are guilty anyway.
What I want to ask my right hon. Friend is this: why is it necessary, what purpose does it serve, what difference does it make to say—not what the Opposition side of the Committee says, but a good Socialist like my hon. Friend, who thinks that I ought to be in the Conservative Party—what difference does it make even to my hon. Friend whether a company has 25 per cent. of its investments or 10 per cent. or 90 per cent. or 100 per cent. in a particular company?

Mr. Hugh Jenkins: If I thought that my hon. Friend had become a member of the Conservative Party I should say so openly, and not, as it were, in parenthesis.

Mr. Lever: Perhaps I owe my hon. Friend an apology. If I have been too touchy, I make apology to him. What difference does it make to my right hon. Friend whether such a company invests all its money or half its money in this way? Perhaps I can have that explained to me. What difference does it make whether a company has 50 shareholders or one? What are these restrictions about? I do not want to repeat myself on the Question, "That the Clause stand part of the Bill". I merely wish to be enlightened because I have not seen so

far any purpose served. Maybe there will be a purpose served. But what I want to ask my right hon. Friend is if it turns out that no purpose is really served may we not have them abolished in their entirety? And if a purpose is served by one or more of the restrictions, then each one must be justified; the purpose and the restriction must be justified.

Mr. John Tilney: I should like to support what the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) said and strongly support what my hon. Friend the Member for Ormskirk (Sir D. Glover) said. I hope that, when the Financial Secretary looks at all these Amendments on Report, he will again look at Amendment No. 52, because investment trusts, especially in Edinburgh and outside London, have done a fine job long term for Britain. I am thinking of those which have invested far more than 10 per cent. in certain industries—in, say, oil drilling off shore in America—to the great success of the trust and to the benefit of our balance of payments. Will he also consider whether if just 26 companies have only 2 per cent. in one investment company that would alter the status of the investment trust? These are points which, no doubt, he will reflect upon, because I am quite certain that the whole of this Clause wants readjusting.

Mr. Peter Walker: May I make it perfectly clear that, if there is an investment trust board with the hon. Member for Manchester Cheetham (Mr. Harold Lever) and my hon. Friend the Member for Ormskirk (Sir D, Glover) as directors, I have no intention of investing in it?

Sir D. Glover: I have no doubt my hon. Friend's reluctance has nothing to do with me, but with the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever).

Mr. Peter Walker: I think that such a trust would have the most protracted board meetings ever.
I am grateful to the Financial Secretary for accepting the spirit of our Amendments. I think that, as always, he did it a trifle reluctantly, but I think that his comments add up to the fact


that we got nine out of 10 for our Amendments. In spite of the lack of enthusiasm, we are grateful to the hon. and learned Gentleman for accepting them in prin-

ciple, as they will substantially improve the Clause. I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. G. A. Pargiter: I beg to move Amendment No. 370, in page 40, line 28, at the end to add:
(3) Any chargeable gains whether short or long-term arising from the sale of investments out of funds established under a scheme for the collective investment of local authority moneys (including superannuation fund moneys) approved by the Treasury under section 11 of the Trustees Investments Act, 1961, shall be apportioned to the participating authorities:
(4) A certificate stating the amount of the chargeable gain apportioned to a local authority under paragraph (3) above shall be given to the authority by the trustees of the scheme and the authorities shall be able to claim repayment of the relevant tax which has been paid by the Trustees as follows:—

(a) in respect of superannuation moneys invested by the authority, the proportion of tax corresponding to that part of its superannuation fund which is approved under section 389 of the Income Tax Act, 1952; and
(b) in respect of other funds invested by the authority, the full amount of the tax.
The purpose of the Amendment is to enable local authorities to do collectively, without attracting tax, what they may do individually. Under Section 11 of the Trustees Investments Act, 1961, it is possible for local authorities to set up a collective scheme for the purpose of investing moneys in equities, and so on. The Local Authorities Mutual Investment Trust is a body which exists entirely for the purpose of investing local authorities' moneys, mainly superannuation funds which, if dealt with in this way, apart from a small proportion, are not subject to tax.
It would be illogical to say that local authorities may do individually what they may not do collectively, and I gather that the object of the Amendment will meet with some sympathy. It may not be worded in the best way. I would have preferred to have included it in Clause 62 which provides exemptions from tax for local authorities, but it is probably not possible to do that because a small section, particularly the superannuation moneys which are not approved, attract tax, and, therefore, that element would probably prevent it from coming under Clause 62.
This is rather a complicated way of dealing with the matter, because it means that the trust pays the tax and local authorities reclaim it. If a way can be

found by which this object can be achieved without going through the machinery of reclamation, it will be easier, less costly, and in the end will cause the Government less trouble, and will certainly cause the Inland Revenue less trouble.
I hope that the Amendment will commend itself to the Government. I am sure that its principle will be accepted, that the Government will want to get the principle right, and will want to ensure that local authorities are allowed to do collectively what they have been able to do individually, indeed, specially requested so to do by the Minister of Housing and Local Government, in a circular issued to them.

Mr. Temple: Not for the first time I find myself in the company of the hon. Member for Southall (Mr. Pargiter) in speaking on behalf of local authorities. I think that the Amendment should commend itself to the Government. Quite frankly, I cannot understand why the Government, in their researches with local authorities, did not discover that the Local Authorities Mutual Investment Trust was outside the scope of the Bill, and bring in an Amendment to cover this point.
The Government are learning extremely quickly. They are learning a lot about investment trusts, and it seems a very good thing that we have a Committee which can give the Bill a very thorough examination. I believe that the Amendment will give effect to the intentions he has so clearly put forward, namely, that the investments of local authorities which are made other than for superannuation fund purposes will be exempt from Corporation Tax, and that those which are made on behalf of superannuation funds will be treated in the same way as investments made on behalf of any other superannuation funds. The Local Authorities Mutual Investment Trust is particularly important to the smaller local authorities—and here I would mention that I am speaking both on behalf on the Association of Municipal Corporations and the Rural District Councils' Association—which do not wish to call in the experts in the investment world; nor have they the facilities to do so, or the necessary access to them.


At present, about £50 million are invested through this organisation.
I believe that the form of the Amendment is sound. I hope that if the Minister cannot accept its wording he will accept its spirit, which is supported wholeheartedly in the local authority world.

10.45 p.m.

Mr. Hirst: I support the two speeches which have been made. Like my hon. Friend, I have an interest in the matter, in that I am a Vice-Chairman of the Urban District Councils' Association, which is equally interested in the Amendment. I hope that we do not have to labour the point, because, as the hon. Member for Southall (Mr. Pargiter) has said, it is self-evident. These slip-ups can happen in the best-regulated societies, and this one should be put right.
In the faint hope that it does not need any great strength of argument I will be brief, but I trust that the hon. Member's reply will be sufficient to get this one out of the way. It is clear that there is a desire on the part of local authorities to be allowed to deal collectively as they have done individually—and collectively it is much more to their advantage. I hope that we do not have to press strongly on this point and make long speeches.

Mr. Diamond: The hon. Member for Shipley (Mr. Hirst) is quite right in saying that local authorities are interested in this matter, and nobody knows the problems of local authorities better than does my hon. Friend the Member for Southall (Mr. Pargiter), who speaks on these matters with great knowledge and years of experience. He will appreciate that the Bill would not have taken its present form unless there had been a distinction to be drawn between exempt persons and non-exempt persons, and that some local authority funds will be exempt and others will not.
What my hon. Friend is proposing is that there shall be a complete exemption from this tax, at all events in respect of taxing in the first place. What he is suggesting is that certificates should be issued enabling tax repayments to be made where appropriate, which would be in most cases.

Mr. Pargiter: The Amendment does not ask for total exemption. It asks for exemption to the same extent that local authorities would be exempt in respect of superannuation funds—in which case about 95 per cent. are regarded as being approved for the purpose of exemption and about 5 per cent., which deal largely with lump sum payments, are not. I am not claiming that the trust should be in any more favourable position than local authorities themselves. I thought that I had made that clear in moving the Amendment.

Mr. Diamond: Perhaps my hon. Friend did not hear me say, "In the first place", by which I was referring to the taxation of the investment trust itself. He is proposing that a tax certificate should be given to the individual local authority, which would enable it to reclaim repayment of tax in appropriate cases. My hon. Friend will no doubt have heard the debate on the very closely related topic of charities, during which, in order to try to help the Committee, I suggested the kind of consideration which the Government would be willing to give to the matter. It is that same kind of consideration which—naturally, with the consistency for which this Government are renowned—it will be glad to give to this comparable Amendment.
It is, of course, within my hon. Friend's knowledge and within that of many other hon. Members that there already exists a fund, the Charifund, which is a method of investing exclusively suitable for charities. There are many investment funds designed for special purposes. I believe that an arrangement could be made, as a result of which local authorities could use this machinery of investment for their funds which would be wholly exempt, instead of for funds part of which would be exempt. If that were the case, there would be such a close relationship and proximity between the investors and the investment trust that one could contemplate bringing in, on Report, provisions which would enable what my hon. Friend wants to be achieved.
I think that that is the best indication which I can give him of the way in which the Government are thinking. There have been negotiations, and these negotiations are by no means at an end. I cannot say that the Amendment in its


present form is the kind which could be accepted, but I think that I have said enough to indicate the sort of consideration which the Government are giving and the kind of device which would largely meet my hon. Friend's point of view.

Mr. Temple: I must admit that I am far from clear about what the hon. Gentleman intends. He made a reference to a previous speech which I do not think was entirely germane to the Amendment so ably moved by his hon. Friend the Member for Southall (Mr. Pargiter). With respect, I do not think that his hon. Friend made the position quite as clear as I endeavoured to make it with regard to the 5 per cent. of money which has nothing to do with the superannuation funds, but which is the ordinary funds of the local authorities.
As I understood it, the hon. Gentleman said that that 5 per cent.—which, if the local authority invested it, would not be subject to Capital Gains Tax, Corporation Tax or Income Tax—will, in this case, be treated as if this organisation were a charity. The hon. Member for Southall made it quite clear how he thought the matter should be treated, that the local authority should be no worse treated if it invested through a mutual fund than if it had invested in individual investments.
If the Chief Secretary will tell the Committee that that is what he accepts, I think that the Committee will be prepared to accept his proposals, but he has not said that. The hon. Gentleman also made hardly any reference to what would happen to the much larger section of the Local Authorities Mutual Investment Trust, that is, the 95 per cent. invested on behalf of superannuation funds. As I said, he referred to a previous speech which was not in the least germane to the argument. We were left to guess what proposals he would bring forward. I do not think that the Committee would be wise to leave this matter at this point. We need a much clearer explanation and I hope that the hon. Member for Southall may be able to join in and press for a little more specific information from his hon. Friend.

Mr. Pargiter: I think that my hon. Friend's explanation, to say the least,

went a long way round to get to the kernel of the matter, which is that where a local authority is exempt from taxation on the investment of its own funds individually, collectively local authorities should be exempt in precisely the same way, no more and no less. I have not asked that the 5 per cent. which is not approved for superannuation purposes should be exempt in any way. I am merely asking that when the Local Authorities Mutual Investment Trust invests 95 per cent. of the superannuation money, it should be exempt. Approximately 5 per cent. of other moneys—housing repair funds, cemetery funds and other bits and pieces—are not exempt, but the bulk is superannuation money.
My hon. Friend was making rather heavy weather of it. I am not asking that these words be accepted, but I am asking him to say clearly that he accepts the principle that local authorities collectively should not be subject to tax. I think that that was sufficiently simple to extract a reasonably simple answer. I am aware that the Government cannot commit themselves to a precise form of words, in view of certain conversations, but my hon. Friend could have indicated that this subject will be discussed on the principles that I have enunciated.

Mr. Peter Walker: I join with the hon. Member for Southall (Mr. Pargiter) in urging the Chief Secretary to reconsider his position. Using similar arguments to those used on charities, the Chief Secretary was saying that if local authorities want to obtain avoidance of this double taxation, which everybody agrees it is right they should, they have to make new arrangements. The present arrangements cannot be used for this purpose and, says the Chief Secretary, they must make new arrangements which the Government will be willing to consider on Report.
When the existing arrangements work so well for local authorities, and are tried and have been used and are working successfully to the satisfaction of the local authorities, I would have thought that it was absurd, because of the Government's doctrinaire principles, to suggest that the arrangements should be rearranged. This principle was involved in our discussion of the position of charities and now it is advocated again. Rather


than stick to his present position, the Chief Secretary should agree to reexamine the whole matter to see whether he cannot use the existing arrangements to give the exemption which is required.

Mr. Lubbock: Is the Chief Secretary saying that local authorities must withdraw the 5 per cent. of their funds which are invested through L.A.M.I.T., funds which did not arise from superannuation contributions analogous to what he said about charities earlier, that is, if they choose to form an investment trust in which only charities—or local authorities—invest and no other person whatever, they will be exempt from Capital Gains Tax? If he is saying that, will he say where that is provided in the Bill? I have studied it carefully and I cannot find where it is provided that L.A.M.I.T. or charities which do as he suggests can be exempted 100 per cent.; or is the hon. Gentleman proposing to put forward an Amendment later?
11.0 p.m.
If this is what he is saying, I ask him to be very careful about it, because it will mean that local authorities will have to withdraw the 5 per cent. of their funds which arise from sources other than superannuation and create some new medium of investment to utilise those funds. This would be a wasteful procedure administratively and it would certainly not endear the Chief Secretary to the local authorities, in view of all the great financial burdens which have been placed on them by the Government's present policy of high interest rates. The Chief Secretary ought seriously to consider the sensible proposals of his hon. Friend.

Sir D. Glover: I do not know whether the Committee should go on discussing the Bill when it becomes appallingly obvious as every hour goes by that the Government who are responsible for it do not know what the repercussions of each Clause will be.
The hon. Member for Southall (Mr. Pargiter) and my hon. Friend the Member for the City of Chester (Mr. Temple) have put forward cogent arguments and the Chief Secretary replied without even understanding those arguments. At this stage, I shall not move to report Progress, but it becomes obvious, as our

discussions proceed, that the Government do not understand the repercussions of half the Clauses which we are discussing and which they are advocating that the Committee should accept.
The Government accepted many Amendments to the last Clause, showing that their original proposals were wrong. We are now having a very narrow discussion on one aspect of local government funds. The hon. Member for Orpington (Mr. Lubbock), the hon. Member for Southall and my hon. Friend the Member for the City of Chester have made cogent speeches which have taken only a few minutes of the time of the Committee and yet the Chief Secretary has not dealt with any of the problems which they thought would arise from the implementing of the Clause. Can we continue to discuss the Committee stage of the Bill when it is becoming increasingly obvious that the Government have completely lost control of their own business?

Mr. Diamond: I am at fault for having assumed that everybody who has spoken to the Amendment was present at an earlier discussion when virtually the identical principle was discussed at length. I am grateful to the hon. Member for Worcester (Mr. Peter Walker) for acknowledging this, because at all events that will make my motives clear. It was not entirely out of ignorance, as the hon. Member for Ormskirk (Sir D. Glover), with his typical gallantry, suggested, but to save the time of the Committee that I assumed that everybody did not want me to go over the same ground twice. The hon. Member for Ormskirk likes going over the same point twice, thrice or forty times.
Perhaps I can tell my hon. Friend the Member for Southall (Mr. Pargiter) that this identical point arose in connection with charities when I pointed out, for a variety of good reasons, why, although a charity itself is not liable to tax, a distinction is to be drawn between individual investors, be they individual citizens, charities or local authorities, and what my hon. Friend called investing jointly, by which he means investing through the machinery of an investment trust. An investment trust is a corporation and is not an individual in that sense. For corporations we have Corporation Tax


and Corporation Tax rates and a number of obvious advantages and disadvantages which flow from that.

Mr. Temple: Has the hon. Gentleman overlooked the fact that in a subsequent Clause local authorities are entirely exempt from Capital Gains Tax and Corporation Tax and that this is only a mutual fund for local authorities?

Mr. Diamond: We are coming later to a Clause that exempts local authorities and there will be a detailed explanation when we get to that stage. As far as we are concerned at the moment—the facts are admitted by all sides—some of the funds that are invested are not exempt from tax. They will not be exempt from tax. What my hon. Friend the Member for Southall is proposing is that a certificate should be given to enable tax that has been paid by the trust to be repaid to the local authority.

Mr. Pargiter: With the exception of approximately 5 per cent., to which I have referred, which we recognise is subject to tax. I am not asking that that should be exempted from tax.

Mr. Diamond: I think I understood what my hon. Friend had in mind. All I am saying, in relation to a body like a local authority—in the same way as we said in relation to charities—is that the Government would like to help as far as possible. If there were such a close relationship between the investor and the investment trust that they were all of the one category and all wholly exempted then, to answer the point made by the hon. Member for Orpington (Mr. Lubbock), although there is no provision in the Bill at the moment to deal with the situation, we would be willing to consider introducing an appropriate amendment on the Report stage.
The further answer to him is that where an investment trust has a membership which is itself a charity, then it is provided in the Bill, that being a charity, that it is tax exempted. Therefore, I repeat that, although there may be considerable advantage in the discussions going on to continue, in the hope that we may find a method that will be satisfactory all round, I cannot accept the Amendment. It would be wholly in-

consistent with the decision the Committee reached earlier.
I hope that my hon. Friend the Member for Southall will understand that while I regard his proposal as sympathetically as possible, this particular form of Amendment will not be satisfactory. The reasons are those given earlier in discussing charities and which I have now repeated more shortly.

Mr. Peter Walker: This is a most unsatisfactory attitude of the Government and the Chief Secretary. What he has said is that where the local authority is investing 95 per cent. exempted funds into an investment trust he is unwilling to give certificates for 95 per cent. to be exempted from capital gains. But if they go to all the administrative problems, resorting and rearrangement of their investment, so that it is 100 per cent., then, in a doctrinaire, dogmatic Socialist spirit, he will consider it. If it is right to consider it for 100 per cent. funds invested by a local authority, it is right to give it consideration for 95 per cent. exempted. The Chief Secretary does himself no credit by his dogmatic attitude.

Mr. Diamond: Is the hon. Member proposing, therefore, that the regulation should be brought forward limited for all time to 95 per cent.?

Mr. Walker: I am suggesting, in the present position, that the Chief Secretary should have accepted his hon. Friend the Member for Southall's Amendment. That would have provided a means whereby certificates could have been given. The Chief Secretary's attitude on this has been completely unreasonable.

Mr. Hirst: This is rather dreadful. It does not require all this Treasury cloak and dagger stuff. We cannot accept with equanimity this sort of assing about on the Report stage. We shall want weeks for the Report stage, to judge from the way the Chief Secretary is going on. The Clause is absolutely clear. It is not good the Chief Secretary trying to hark back to the charities Amendment. Here is a local authority investment trust set up by the Treasury under Section 11 of the Trustee Investment Act. This is an issue which should have stuck out a mile for consideration by the Treasury. For the


Chief Secretary to use phrases like, "I will give the matter further thought", and, "It needs further consideration between now and Report", is totally inadequate and an absolute insult to the Committee. It cannot be anything else. The hon. Gentleman is too intelligent for this to have been an oversight. This problem must have been understood and realised by the Treasury.
The sooner we make progress the better. Meanwhile, the Treasury Ministers must understand that some thought must be given to these matters before they come before the Committee to answer our questions. I am not making a party political point. It is a matter of courtesy to the Committee that the Government should be prepared to answer our questions on these important issues. The Financial Secretary surely did not have to be briefed overnight on this one.
Local authorities have benefited in the past. It would be a bore if they must go to all this trouble individually. They combined together and, for the sake of convenience, made arrangements which avoided the necessity of them having to take individual action. After all that procedure the Financial Secretary has the nerve to tell the Committee that he will consider the issue between now and Report. If that is to be the treatment we are to get from the Government there will be opposition to the Bill Clause by Clause and line by line.

Mr. Pargiter: Having listened carefully to the reply of my hon. Friend the Chief Secretary I am bound to tell him that

he did not go as far as he might in his assurance. It was unfortunate that he went into the question of the different types of charities because I have been at pains to keep this matter to the specific issue with which the Amendment is concerned. I was grateful for the assurance, such as it was, and I hope that he will give the matter further consideration.

I appreciate that he considers that a loophole might exist here and that evasion might take place. Is he saying that all local authority funds—except the 5 per cent. or so of their superannuation funds in regard to which tax is payable—will, as soon as Clause 62 becomes law, be exempt from tax if invested through the trust, provided that this element of superannuation funds which is subject to tax is not so invested and that this course would save the local authorities the trouble of having to reclaim tax as is proposed in this Amendment?

I am sure that the representatives of the local authorities would be happy to discuss this matter with the Treasury. Such discussions might prove a fruitful way of resolving this difficulty, without each local authority being involved in having to reclaim tax. I appreciate the assurance which my hon. Friend gave and if he would be prepared to indicate that this is what he means I would be happy to withdraw the Amendment.

Hon. Members: No.

Question put, That those words be there added:—

The Committee divided: Ayes 193, Noes 198.

Division No. 154.]
AYES
[11.15 p.m.


Agnew, Commander Sir Peter
Boyd-Carpenter, Rt. Hn. J.
Currie, G. B. H.


Alison, Michael (Barkston Ash)
Boyle, Rt. Hn. Sir Edward
Dalkeith, Earl of


Allan, Robert (Paddington, S.)
Braine, Bernard
Davies, Dr. Wyndham (Perry Barr)


Allason, James (Hemel Hempstead)
Brinton, Sir Tatton
d'Avigdor-Goldsmid, Sir Henry


Amery, Rt. Hn. Julian
Bromley-Davenport,Lt.-Col.Sir Walter
Dean, Paul


Anstruther-Gray, Rt. Hn. Sir W.
Brown, Sir Edward (Bath)
Deedes, Rt. Hn. W. F.


Atkins, Humphrey
Bruce-Gardyne, J.
Digby, Simon Wingfield


Baker, W. H. K.
Bryan, Paul
Doughty, Charles


Barber, Rt. Hn. Anthony
Buxton, Ronald
Douglas-Home, Rt. Hn. Sir Alee


Barlow, Sir John
Campbell, Gordon
Elliot, Capt. Walter (Carshalton)


Batsford, Brian
Carlisle, Mark
Eyre, Reginald


Beamish, Col. Sir Tufton
Carr, Rt. Hn. Robert
Farr, John


Berkeley, Humphry
Chataway, Christopher
Fell, Anthony


Berry, Hn. Anthony
Clark, William (Nottingham, S.)
Fletoher-Cooke, Charles (Darwen)


Bessell, Peter
Cole, Norman
Fletcher-Cooke, Sir John (S'pton)


Biffen, John
Cooke, Robert
Foster, Sir John


Biggs-Davison, John
Cooper-Key, Sir Neill
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)


Birch, Rt. Hn. Nigel
Corfield, F. V.
Fraser, Ian (Plymouth, Sutton)


Blaker, Peter
Courtney, Cdr. Anthony
Gammans, Lady


Bossom, Hn. Clive
Crosthwaite-Eyre, Col. Sir Oliver
Gardner, Edward


Box, Donald
Curran, Charles
Gibson-Watt, David




Gilmour, Ian (Norfolk, Central)
Lancaster, Col. C. G.
Ramsden, Rt. Hn. James


Gilmour, Sir John (East Fife)
Langford-Holt, Sir John
Rawlinson, Rt. Hn. Sir Peter


Glover, Sir Douglas
Legge-Bourke Sir Harry
Redmayne, Rt. Hn. Sir Martin


Goodhart, Philip
Lewis, Kenneth (Rutland)
Ridsdale, Julian


Goodhew, Victor
Litchfield, Capt. John
Rodgers, Sir John (Sevenoaks)


Gower, Raymond
Longbottom, Charles
Roots, William


Grant, Anthony
Longden, Gilbert
Scott-Hopkins, James


Grant-Ferris, R.
Loveys, Walter H.
Sharples, Richard


Gresham Cooke, R.
Lubbock, Eric
Sinclair, Sir George


Grieve, Percy
Lucas, Sir Jocelyn
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Griffiths, Peter (Smethwick)
McAdden, Sir Stephen
Spearman, Sir Alexander


Grimond, Rt. Hn. J.
MacArthur, Ian
Stainton, Keith


Gurden, Harold
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Steel, David (Roxburgh)


Hall, John (Wycombe)
Mackie, George Y. (C'ness &amp; S'land)
Stodart, Anthony


Hall-Davis, A. G. F.
Maclean, Sir Fitzroy
Stoddart-Scott, Col. Sir Malcolm


Harris, Froderic (Croydon, N.W.)
Macleod, Rt. Hn. Iain
Studholme, Sir Henry


Harris, Reader (Heaton)
McMaster, Stanley
Taylor, Edward M. (G'gow,Cathcart)


Harrison, Brian (Maldon)
Maginnis, John E.
Taylor, Frank (Moss Side)


Harrison, Col. Sir Harwood (Eye)
Maude, Angus
Teeling, Sir William


Harvey, Sir Arthur Vere (Macclesf'd)
Mawby, Ray
Temple, John M.


Harvey, John (Walthamstow, E.)
Maxwell-Hyslop, R. J.
Thatcher, Mrs. Margaret


Hastings, Stephen
Meyer, Sir Anthony
Thomas, Sir Leslie (Canterbury)


Hawkins, Paul
Mills, Stratton (Belfast, N.)
Thomas, Rt. Hn. Peter (Conway)


Heald, Rt. Hn. Sir Lionel
Miscampbell, Norman
Thompson, Sir Richard (Croydon,S.)


Heath, Rt. Hn. Edward
Mitchell, David
Tilney, John (Wavertree)


Higgins, Terence L.
Monro, Hector
Turton, Rt. Hn. R. H.


Hill, J. E. B. (S. Norfolk)
More, Jasper
Tweedsmuir, Lady


Hirst, Geoffrey
Morgan, W. G.
van Straubenzee, W. R.


Hobson, Rt. Hn. Sir John
Morrison, Charles (Devizes)
Walker, Peter (Worcester)


Hogg, Rt. Hn. Quintin
Mott-Radclyffe, Sir Charles
Ward, Dame Irene


Hooson, H. E.
Munro-Lucas-Tooth, Sir Hugh
Weatherill, Bernard


Hordern, Peter
Murton, Oscar
Whitelaw, William


Hornby, Richard
Noble, Rt. Hn. Michael
Williams, Sir Rolf Dudley (Exeter)


Hunt, John (Bromley)
Nugent, Rt. Hn. Sir Richard
Wills, Sir Gerald (Bridgwater)


Hutchison, Michael Clark
Osborn, John (Hallam)
Wilson, Geoffrey (Truro)


Irvine, Bryant Godman (Rye)
Page, R. Graham (Crosby)
Wise, A. R.


Jenkin, Patrick (Woodford)
Pearson, Sir Frank (Clitheroe)
Wolrige-Gordon, Patrick


Johnson Smith, G. (East Grinstead)
Percival, Ian
Wood, Rt. Hn. Richard


Johnston, Russell (Inverness)
Peyton, John
Wylie, N. R.


Kaberry, Sir Donald
Pickthorn, Rt. Hn. Sir Kenneth
Younger, Hn. George


Kilfedder, James A.
Pitt, Dame Edith



Kimball, Marcus
Powell, Rt. Hn. J. Enoch
TELLERS FOR THE AYES:


King, Evelyn (Dorset, S.)
Price, David (Eastleigh)
Mr. Martin McLaren and


Kirk, Peter
Pym, Francis
Mr. R. W. Elliott.


Lambton, Viscount
Quennell, Miss J. M.





NOES


Albu, Austen
Davies, Ifor (Gower)
Harrison, Walter (Wakefield)


Alldritt, Walter
Davies, S. O. (Merthyr)
Hazell, Bert


Allen, Scholefield (Crewe)
Delargy, Hugh
Herbison, Rt. Hn. Margaret


Armstrong, Ernest
Dempsey, James
Hobden, Dennis (Brighton, K'town)


Atkinson, Norman
Diamond, John
Homer, John


Bagier, Gordon A. T.
Dodds, Norman
Houghton, Rt. Hn. Douglas


Baxter, William
Doig, Peter
Howarth, Robert L. (Bolton, E.)


Beaney, Alan
Donnelly, Desmond
Howie, W.


Bence, Cyril
Driberg, Tom
Hughes, Cledwyn (Anglesey)


Benn, Rt. Hn. Anthony Wedgwood
Duffy, Dr. A. E. P.
Hughes, Emrys (S. Ayrshire)


Bennett, J. (Glasgow, Bridgeton)
Dunn, James A.
Hunter, Adam (Dunfermline)


Binns, John
Dunnett, Jack
Hynd, H. (Accrington)


Bishop, E. S.
English, Michael
Irving, Sydney (Dartford)


Blackburn, F.
Ennals, David
Jackson, Colin


Blenkinsop, Arthur
Evans, Albert (Islington, S.W.)
Jay, Rt. Hn. Douglas


Boardman, H.
Fernyhough, E.
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)


Boyden, James
Fitch, Alan (Wlgan)
Jenkins, Hugh (Putney)


Braddock, Mrs. E. M.
Fletcher, Sir Eric (Islington, E.)
Jenkins, Rt. Hn. Roy (Stechford)


Bradley, Tom
Fletcher, Ted (Darlington)
Johnson, Carol (Lewisham, S.)


Brown, Rt. Hn. George (Belper)
Fletcher, Raymond (Ilkeston)
Johnson,James(K'ston-on-Hull,W.)


Brown, Hugh D. (Glasgow, Provan)
Floud, Bernard
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)


Buchanan, Richard
Foot, Sir Dingle (Ipswich)
Jones, J. Idwal (Wrexham)


Butler, Herbert (Hackney, C.)
Foot, Michael (Ebbw Vale)
Jones, T. W. (Merioneth)


Butler, Mrs. Joyce (Wood Green)
Ford, Ben
Kenyon, Clifford


Callaghan, Rt. Hn. James
Fraser, Rt. Hn. Tom (Ham[...]lton)
Kerr, Mrs. Anne (R'ter &amp; Chatham)


Carmichael, Neil
Freeson, Reginald
Kerr, Dr. David (W'worth, Central)


Carter-Jones, Lewis
Garrett, W. E.
Lawson, George


Castle, Rt. Hn. Barbara
Garrow, A.
Ledger, Ron


Coleman, Donald
Ginsburg, David
Lever, Harold (Cheetham)


Conlan, Bernard
Gourlay, Harry
Lewis, Ron (Carlisle)


Corbet, Mrs. Freda
Greenwood, Rt. Hn. Anthony
Lomas, Kenneth


Cousins, Rt. Hn. Frank
Gregory, Arnold
Loughlin, Charles


Craddock, George (Bradford, S.)
Grey, Charles
Mabon, Dr. J. Dickson


Cronin, John
Griffiths, Rt. Hn, James (Llanelly)
McCann, J.


Cullen, Mrs. Alice
Griffiths, Will (M'chester, Exchange)
MacColl, James


Dalyell, Tam
Hamilton, James (Bothwell)
MacDermot, Niall


Davies, G. Elfed (Rhondda, E.)
Harper, Joseph
McGuire, Michael







Mclnnes, James
Pargiter, G. A.
Swain, Thomas


McKay, Mrs. Margaret
Park, Trevor (Derbyshire, S.E.)
Symonds, J. B.


Mackenzie, Gregor (Rutherglen)
Parker, John
Thomas, Iorwerth (Rhondda, W.)


Mackie, John (Enfield, E.)
Parkin, B. T.
Thomson, George (Dundee, E.)


MacMillan, Malcolm
Pearson, Arthur (Pontypridd)
Tomney, Frank


MacPherson, Malcolm
Peart, Rt. Hn. Fred
Urwin, T. W.


Mahon, Peter (Preston, S.)
Pentland, Norman
Walden, Brian (All Saints)


Mahon, Simon (Bootle)
Perry, Ernest G.
Wallace, George


Manuel, Archie
Popplewell, Ernest
Watkins, Tudor


Mapp, Charles
Prentice, R. E.
Wells, William (Walsall, N.)


Mason, Roy
Probert, Arthur
Whitlock, William


Millan, Bruce
Pursey, Cmdr. Harry
Wigg, Rt. Hn. George


Miller, Dr. M. S.
Rees, Merlyn
Wilkins, W. A.


Milne, Edward (Blyth)
Rhodes, Geoffrey
Willey, Rt. Hn. Frederick


Morris, Alfred (Wythenshawe)
Roberts, Albert (Normanton)
Williams, Alan (Swansea, W.)


Morris, Charles (Openshaw)
Roberts, Goronwy (Caernarvon)
Williams, Mrs. Shirley (Hitchin)


Mulley,Rt.Hn.Frederick(SheffieldPk)
Robertson, John (Paisley)
Williams, W. T. (Warrington)


Murray, Albert
Robinson, Rt. Hn.K.(St. Pancras, N.)
Willis, George (Edinburgh, E.)


Neal, Harold
Rodgers, William (Stockton)
Wilson, Rt. Hn. Harold (Huyton)


Newens, Stan
Ross, Rt. Hn. William
Wilson, William (Coventry, S.)


Noel-Baker, Francis (Swindon)
Sheldon, Robert
Winterbottom, R. E.


Norwood, Christopher
Shore, Peter (Stepney)
Woodburn, Rt. Hn. A.


Oakes, Gordon
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Woof, Robert


Ogden, Eric
Silkin, John (Deptford)
Wyatt, Woodrow


Oram, Albert E. (E. Ham, S.)
Skeffington, Arthur
Zilliacus, K.


Orme, Stanley
Slater, Joseph (Sedgefield)



Oswald, Thomas
Small, William



Page, Derek (King's Lynn)
Solomons, Henry
TELLERS FOR THE NOES:


Paget, R. T.
Stewart, Rt. Hn. Michael
Mr. Brian O'Malley and


Palmer, Arthur
Stonehouse, John
Mrs. Harriet Slater.


Pannell, Rt. Hn. Charles
Summerskill, Hn. Dr. Shirley

Clause ordered to stand part of the Bill.

Clause 35.—(DOUBLE TAXATION RELIEF.)

The Solicitor-General (Sir Dingle Foot): I beg to move Amendment No. 411, in page 40, line 39, at the end to insert:
(2) Any arrangements set out in an order made under the said section 347 either before the passing of this Act, or, in the case of an order of which a draft was laid before the House of Commons before the passing of this Act, made after the passing of this Act, shall so far as they provide (in whatever terms) for relief from tax chargeable in the United Kingdom on capital gains have effect in relation to capital gains tax.
I can commend the Amendment to the Committee in a very few words. It is entirely uncontroversial. The purpose of the Clause is to provide relief against double taxation in respect of capital gains in the same way as we provide it under various agreements with other countries in respect of other forms of income.
As the Clause is drafted, it only enables the Government to enter into future agreements applicable to the Capital Gains Tax, but there are a number of existing agreements which define the right of each party to the agreement to tax capital gains. Since those provisions exist, it is clearly desirable that any relevant provisions in these agreements ought now to apply to the proposed Capital Gains Tax. I do not think that the Committee will wish me to elaborate this topic. I

submit that this is obviously desirable, and I ask the Committee to accept the Amendment.

Amendment agreed to.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. John Hall: On a point of elucidation, may we take it that under the Clause relief will be given in respect of foreign taxes chargeable on a capital gain, including local income tax chargeable thereon?

The Solicitor-General: I think that I can give the hon. Gentleman that assurance.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 36.—(RELIEF IN RESPECT OF DELAYED REMITTANCES OF GAINS.)

The Solicitor-General: I beg to move Amendment No. 150, in page 41, line 30, after "representatives"), to insert:
as if it were an amount of chargeable gains accruing".
This also, I think, is an entirely uncontroversial Amendment. The Committee will have observed the purpose of the Clause. It not infrequently happens nowadays, when there are so many exchange controls and other restrictions on the movement of funds and currency, that someone earns a sum of money, whether by way of income or by way of


capital gains, in a foreign country, and is unable, maybe for a long period, to bring the proceeds to this country.
The purpose of the Clause, which it is now sought to amend, is to ensure that he shall not be chargeable for tax before the money is available to him here. It may happen that someone earns the money in, say, year 1 in the country of origin, but is unable to bring the proceeds here until year 10. As the Clause now stands, it might happen that, although he would be taxed in the year in which the money was available in this country, he might still be taxed in respect of the first year.
It is to avoid that possible ambiguity that the Amendment is tabled. There is a distinction between taxing "in" the year and taxing "for" the year. It is to meet that point that I move the Amendment.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 37.—(NON-RESIDENT COMPANY.)

11.30 p.m.

Sir Eric Fletcher: I beg to move Amendment No. 151, in page 42, line 9, after "be", to insert "equal to".
This is really a minor drafting Amendment to remove a slight inelegance in this Clause. As the Clause stands, it provides that United Kingdom resident shareholders in a company which is not resident in the United Kingdom would be in a close company which would be charged on a proportionate part of the gains realised by the company.
Subsection (3) of the Clause defines the part on which United Kingdom resident shareholders shall be charged as that part which would be a proportion of the assets to which the shareholders would be entitled on the liquidation of the company. But the part on which the United Kingdom shareholders should be charged would be the proportionate part of the whole gain corresponding to the proportionate part of the assets of the company to which they would be entitled on liquidation. In other words, that part shall be equal to that proportion of the assets.

Mr. Norman Cole: Since we appear to be concerned with correct English, is the Minister without Portfolio satisfied about the wording of subsection (3)? I was always taught that "That part" did not stand by itself. I know what it means, but I suggest it might well read, "That part referred to in subsection (2) shall be equal to, etc.".

Sir Eric Fletcher: I do not think that there is any ambiguity about this. "That part", in subsection (3), quite clearly refers to the part at the end of subsection (2), and I suggest that it would have been tautologous to have repeated it as the hon. Gentleman suggests.

Amendment agreed to.

Sir Eric Fletcher: I beg to move, Amendment No. 438, in page 42, line 12, at the end to insert:
(4) If the part of a chargeable gain attributable to a person under subsection (2) of this section is less than one-twentieth, the said subsection (2) shall not apply to that person.
The Committee will appreciate that Clause 37 is an anti-tax avoidance Clause. Since it was originally drafted, representations have been made by the Federation of British Industries and the Association of British Chambers of Commerce that the position of minority shareholders under the Clause as it stands would give rise to difficulties. We have considered that view with sympathy and consider it appropriate to meet the point which has been made on behalf of minority shareholders that this Clause shall not have any application in the case of persons holding fewer than one-twentieth of the shares in a company.
I hope that the Committee will accept this as a reasonable Amendment on behalf of a large number of shareholders.

Mr. Charles Fletcher-Cooke: Will the Minister without Portfolio explain why any minority shareholder should be liable in this case? It is difficult to discuss the Clause because we do not yet know how the definition of a close company will finally emerge, and we are given to understand that, one way or another, it may be very sharply amended by the time we reach it. But assuming that it remains as at present, why should a minority shareholder—not the man in control of the company, not a man with


any connection with the control of the company—be subject in this way? I can well understand the misgivings of the chambers of commerce.
It seems agreeable but lacking logic to fix the minority shareholding at one-twentieth. Will the Minister explain why a minority shareholder should be caught and, when he does so, will he give some justification for the figure of one-twentieth, which seems to have been picked out of a hat?

Sir Eric Fletcher: It is obvious that a minority shareholder as such ought not to be penalised. The difficulty is to define what is a minority shareholder, and when he ceases to be a minority shareholder and becomes one of a group which controls the company.
The hon. and learned Member said quite rightly that we have not yet reached a discussion of the definition of a close company. We shall reach that in Clause 69 and subsequent Clauses. If the hon. and learned Member looks at Clause 73 he will find a somewhat similar provision for the apportionment of Surtax of a close company's income. In Clause 73(6) there is a definite provision that a minority shareholder shall not be charged to Surtax on income from a company
if it amounts either to £100 or more, or to 5 per cent. or more of the amount the company has distributed.
The figure of 5 per cent., which is the same as the one-twentieth which we are introducing into Clause 37, is not, as the hon. and learned Member suggested, a figure taken haphazardly or at random; it is chosen to bring it into line with the definition of close corporations in the latter part of the Bill, and it seems to us consistent with this provision.
Although one has to have a rough-and-ready test as to when a minority shareholder ceases to be a minority shareholder, we thought that it would be appropriate to fix it at 5 per cent., and in so doing we met the representations made to us by the Federation of British Industries and the Association of British Chambers of Commerce.

Mr. Charles Fletcher-Cooke: Why is not one-tenth or one-seventh or one-fifth a minority?

Sir Eric Fletcher: Why not equally say that 49 per cent. is a minority?

Hon. Members: It is.

Amendment agreed to.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Gresham Cooke: I confess that I have not made a study of the Clause, but I should like to ask the Minister two questions about it. If we have a nonresident company registered overseas and a capital gain accrues to that company, is it correct that a resident in this country has to pay Capital Gains Tax, even though the gain has not accrued to him? Does he pay tax even though he has not realised that gain? If so, is that fair?
Moreover, it appears to me that a resident of this country would not be able to charge losses against the capital gains which accrue to the non-resident company. If so, is that right? It seems an extraordinary state of affairs that a resident in this country should be caught by the Capital Gains Tax on something which has not accrued to him and, also, that he should not be able to set off his losses. Will the Minister explain the position?

Mr. Lubbock: On an earlier Amendment which we had put down to Clause 34, to insert a provision that capital gains accruing to a company were not to be chargeable again in the hands of the shareholder, the Chief Secretary said that, if a company made a capital gain from the disposal of an asset, this did not necessarily result in an equivalent change in the value of the shares in the hands of the shareholders, and one had to view these things quite separately. In this Clause, there is provision that a capital gain made by this particular type of company is to be treated as though it had accrued to the shareholders in proportion to their respective holdings.
What is the logic in it? In one Clause, the Government say that there is no connection between capital gains made by a company and those which ultimately accrue to shareholders, and in the other they say precisely the reverse.

Sir Eric Fletcher: There is no discrepancy between this Clause and Clause 34. Clause 37 is an anti-tax avoidance Clause. The Committee will


appreciate that, in the ordinary way, liability for Capital Gains Tax is restricted to persons resident or ordinarily resident in the United Kingdom. If the tax is not to be widely avoided, it is esssential to provide against arrangements under which persons in this country set up companies resident abroad merely for the purpose of holding their assets, thus keeping them outside the scope of the Capital Gains Tax.
A device of that kind would be easy to organise and would lead to wholesale tax avoidance. The tax advantages would be quite obvious if persons were able to form companies nominally resident abroad as a channel through which they could operate and acquire capital gains over a period which would not attract tax at all.
I am sure that I have the whole Committee with me in our desire to close as many loopholes for tax avoidance as possible. That is what this Clause is designed to do. In answer to the hon. Member for Twickenham (Mr. Gresham Cooke), there is no conflict whatever with the provisions of Clause 34, which we have already passed.

Mr. Gresham Cooke: Will the Minister answer the point about setting off losses? Apparently, these arrangements are not allowed for setting off losses.

Sir Eric Fletcher: That is quite right. In an anti-tax avoidance Clause it is expressly provided that it would not be possible for the company to set off losses. Unless that were done, it would be the easiest thing in the world for a company to dispose of assets which produced a loss and retain assets which showed a gain, thereby deriving quite unjustifiable tax advantages.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 38.—(NON-RESIDENT TRUST.)

11.45 p.m.

Mr. Grimond: I beg to move Amendment No. 410, in page 43, line 11, after "settlement" to insert:
made after the passing of this Act".
I understand that with this Amendment we are taking Amendment No.

308, in page 43, line 29, at the end to insert:
(4) This section shall apply only in the case of settlements made after 6th April, 1965.
Let me say at once that the object of both these Amendments is to limit this Clause to settlements made after these proposals were brought in, and that for my part I would be perfectly content to take 6th April instead of "after the passing of this Act".
This is a Clause which deals with nonresident trusts, and it has three features. First, the charge is to be levied not on a trustee, but the beneficiary. Secondly, as in the previous Clause, no losses are to be set off against gains. Thirdly, there is what seems to me the considerable difficulty in interpreting subsection (2), and I will come to that in due course.
I want to make two preliminary points. First, that this Committee should not authorise the Government to penalise the whole lot of perfectly legitimate transactions for the sake of catching some tax evaders. This seems to me a most important principle which we are in danger of losing sight of. Because there are some burglars, that is no reason for locking up everybody after a certain hour at night. Secondly, although it is justifiable to stop serious tax evasion, I do suggest we must act in such a way that, in changing the law, as we are doing, the people whose transactions we want to stop have some chance of so rearranging their affairs that they come within the new law. It seems to me that, as it stands, this Clause offends against both those principles.
Let me make it clear at once that I fully realise that from now onwards, of course, if the Government took no steps to levy some charge on non-resident trusts, this would leave a totally unacceptable loophole. Therefore, neither I, nor, I think, the sponsors of the other Amendment, are disputing that the Government have a right to legislate for the future against what could become a very easy method of tax evasion. What we are anxious about is trusts already in being. I do not know whether the Government can give us any idea—it would be interesting if they could—how much revenue might be lost if existing trusts were struck out altogether. I do not know whether they have any figures.
I now come to try to explain to the Committee what may be the effect of this Clause if it is applied to existing trusts unamended. It imposes a charge to tax on capital gains of persons who may not receive capital gains and who may derive very little or no benefit from them if they are beneficiaries in this country of a trust wholly managed abroad. Capital gains realised by non-resident trustees are normally to be apportioned between those persons resident in the United Kingdom interested in the income of the trust and those interested in the capital.
As I said, it would seem that the latter part of subsection (2), which says
any such gain shall be apportioned in such manner as is just and reasonable",
would be extremely difficult to interpret, especially as it goes on to say:
as near as may be, in equal parts to those interested in income and to those interested in capital respectively.
Persons resident in the United Kingdom who are entitled to income of a nonresident trust made by the settlor who was in residence in the United Kingdom when he made the settlement are to be treated as though they received half of any capital gain. That is the nomal procedure. No doubt, there may be an argument with the Inland Revenue, but that appears to be the normal procedure. As I say, no relief is to be given in respect of the settlement's capital losses.
Let us take a hypothetical case. Let us take a non-resident trust with a capital of £100,000. Let us suppose that the annual gross income is £4,000 a year and that in a hypothetical year it gains £11,000 on one transaction and loses £11,000 on another. For the purpose of this Clause it has made a gain of £11,000. A beneficiary of the settlement, entitled to the income of the trust, but having no interest in the capital, would be treated as though he had made a capital gain of £5,500, that is to say, half of £11,000. If he was a single person with no other income than the £4,000, he would pay about £1,800 in Income Tax and Surtax and he would pay tax on this notional long-term capital gain, which would come to £1,650 or thereabouts. In fact, his annual net income from the trust would be reduced to £547.
If it was a short-term gain, as far as I can see, assuming those figures, he would lose money. He would have to find £1,784 in that year. I cannot believe that that would be considered fair. In fact a United Kingdom resident contingently interested in the capital of a non-resident settlement is to be treated as having made a gain of £5,500, even though he has received no benefit from that transaction. It seems to me that a nonresident trustee who is pursuing a successful investment policy, and certainly acting in the best interests of the remainder-men, might thereby have a highly deleterious effect on those with a life interest.
It may be asked, "Are there many such trusts? Would this often happen?" I am told that there are many such trusts. There are a lot of trusts in Ireland which will be affected by this, but one that I can quote particularly is an American trust which was set up by a British national in 1916. The assets of the trust are wholly American, and have been in America for generations. The object of the trust was to prevent the beneficiaries from frittering away the assets. In this case there was no question of transferring assets to America for the purpose of evading taxation. They were there. In fact, there was no question of evading British taxation at all. I am told that in America that type of trust is known as a spendthrift trust, and is set up simply to prevent beneficiaries from frittering away their inheritance or their assets.
The present beneficiaries of the trust are British, the trustee is an American corporation which regards it as its duty to increase and protect the capital. The point is that the Government are now to levy a Capital Gains Tax on the beneficiaries. But there is nothing to force the trustees to realise the assets and make the money available to enable the beneficiaries to pay the tax. Therefore, the beneficiaries may well be forced to pay this tax out of other assets which they hold, or they will be unable to pay it at all. I cannot believe that this is fair, equitable, or, indeed, practicable.
Section 412 of the Income Tax Act, 1952, has provisions against the remission of assets overseas for the purpose of tax avoidance, but it makes it clear that it is to be invoked only in cases in which the object is clearly tax avoidance. As a


layman, I submit that that section, or something similar, could well have covered any cases which the Government wanted to cover.
I therefore recommend that the Government should either accept the Amendment to remove the retrospection from the Clause, and thereby prevent it from applying to existing trusts—as I have said the incidence on existing trusts would be almost impossible to enforce, and if it were enforced it would be extremely unfair on beneficiaries—or they should take the matter back and re-examine it, and let us know their proposals on Report. I do not deny that for the future something must be done to prevent people putting money into an overseas trust. The Government may be able to find a better way of dealing with this problem, but as it stands the Clause needs amendment.

Mr. Marcus Kimball: I sincerely trust that the Government will re-examine the Clause, because it has the most extraordinary effect of imposing liability for tax on people who have absolutely no control of the funds to which the gain may apply. In fact, they may not even know that the funds exist. They may be in the position of having no resources with which to pay the liability. The whole Clause brings about a drastic change in the whole principle of taxation of trusts, and particularly foreign-based trusts. It demands a radical change in the way in which these trusts are created. Powers will have to be given—and there are none in the Bill—to trustees to pay taxes which would normally be legally unenforceable in the jurisdiction of the country in which the foreign trust is based.
When these existing trusts were formed nobody could have had any idea that such an unfair and extraordinary tax could ever have been envisaged. The Clause represents the worst kind of imposition of retrospective legislation on people who will not be able to pay this tax.
As I understand, it goes against one of the great international principles, that one country cannot sue for taxation in another country. The Clause attempts to get round this difficulty by saying, "If we cannot enforce the capital gain in the country where the trust is resident we

shall nail the beneficiary who is unfortunate enough to be resident in the United Kingdom". This is forcing Peter to pay Paul's taxes. Peter is the wretched beneficiary in this country, who is paying tax on capital gains which would be liable to be paid by Paul, the foreign trustee who is non-resident here.
Most of us regard the law as an ass in many respects, and this Clause and the Chancellor's action make the law even more contemptible. Many of us have received advice that the Clause as drafted is quite unenforceable. The right hon. Member for Orkney and Shetland (Mr. Grimond) pointed out that trustees—particularly those resident in another country—might be committing a breach of trust if they were to pay this tax on behalf of the trust. The Clause represents the worst kind of mediaeval torture, in that we torture A in order to get money out of B. That is what the Chancellor is trying to do.
It is administratively impossible. It will not be paid by any well-managed or well-advised trust. The Chancellor will be aware that in a discretionary trust the trustees have absolute power to whom they elect to pay out the money. The amazing thing is that they do not even have to inform a person that he is a beneficiary under a discretionary trust. A person could run into a liability for tax for which he did not even know he was liable. A beneficiary might not even know that he was liable to benefit under a trust, and would certainly not be in a position to find out whether a foreign-based trust had made any capital gains.
The fact that the Chancellor is worried about the Clause is proved by its drafting, and the use of the words
shall be apportioned in such manner as is just and reasonable …
This certainly lends itself to very long arguments about what is just and reasonable. I would give the Chancellor a simple example. There might be a discretionary trust with its first discretion towards the settlor's widow, aged 85, then three children aged 50, five grandchildren in their twenties, one great grandchild in its first year, and a non-resident foreign charity. Two of the children in their twenties are not even resident in this country. Who is to pay their share of the Capital Gains Tax?


Will the widow have to pay it? She may have no resources, and probably cannot afford to pay it.
Suppose the trustees decide not to exercise their discretion in favour of two other children resident in the United Kingdom because they have plenty of money from other resources. Are those children, with no benefit from the trust, to be responsible for the capital gains from the whole of the trust, although they get no provision from it? Or will the Chancellor wait for the great grandchild of one year to come of age and put the whole tax burden on him? I suspect so.
12 m.
The Chancellor must know that there are some foxes which one cannot hunt: they do not smell strong enough. He will get no joy from hunting this one. He has no hope of catching it, and he would do far better to withdraw the Clause. Throughout the Bill we have suffered from the Chancellor's approach, and a complete misconception of all trusts and, in particular, of discretionary trusts. They have nothing to do with tax avoidance. They are merely a means of trying to foresee how money can best be used in the future. The settlor gives to his trustees the complete discretion to look after his fortune in the light of present circumstances to the best advantage of his widow and children. Who can possibly tell what the relationship in a family will be in the next generation? Who can possibly provide for it?
It is possible for the Chancellor himself to be named as a beneficiary under a discretionary trust. He would not know it. He cannot come to the Box and deny it, because he would not know it. It would be nobody's duty to tell him. Somebody might have thought, with this iniquitous tax in mind, of naming the Chancellor as beneficiary, but the trustees would not elect to pay him anything out of the trust, even if he made a charge for tax on them—[An HON. MEMBER: "Why not?"]. Because they would not agree that it was to his advantage. The Chancellor could become liable for tax under Clause 38 of the Bill, but he would have no assets from which to pay it.
I hope that the right hon. Gentleman is aware that there is no provision in our law under which somebody who is fortunate or unfortunate enough to be the likely beneficiary under a discretionary trust can renounce his fortune. I hope that, in view of the remarks made on this highly unsatisfactory Clause, he will tell us that he will not go on with this, because it is not a starter.

Sir Eric Fletcher: I think that it is obvious from the speech of the hon. Member for Gainsborough (Mr. Kimball) that, unless something is done, there are obvious ways in which liability for Capital Gains Tax can be avoided by residents transferring their assets abroad and putting them in the hands of non-resident trustees. There is obviously a case for doing something.
I am impressed by what the right hon. Member for Orkney and Shetland (Mr. Grimond) said. He enunciated a principle with which, I think, we would all agree—that the Treasury, in taking legitimate steps to prevent tax avoidance, should, at the same time, try to avoid penalising legitimate transactions. Consistent with that principle, we must examine the Clause and see whether it can be modified to meet some of the criticisms made by the right hon. Gentleman.
In the first place, the right hon. Gentleman criticised the Clause on the ground, primarily, that, whereas it was right that it should apply to all future non-resident trusts, it was objectionable that it should apply to existing trusts, and that, in that sense, it smacked of retrospective legislation. We all have the same views about retrospective legislation; indeed, before now I have attacked it in the House. The principle to which we subscribe is that a case has to be made out to justify it.
The right hon. Member mentioned the trust created in America in 1916. My view is that it might be right to introduce a modification to the Clause to ensure that legitimate trusts created long before there was any thought of introducing a capital gains tax in this country are not caught by it. At the same time, it would not be right to accept his Amendment applying the tax only to trusts created after the passing of the Bill.
Ever since my right hon. Friend the Chancellor made his Budget statement on 11th November, 1964, if not earlier, it was well known that a Capital Gains tax was to be introduced into our fiscal arrangements. From that date at least the opportunity, and, no doubt, the temptation, presented itself to those who were desirous of avoiding liability to Capital Gains Tax and who had the wealth and the means with which to do it. It was open to them to try to avoid liability to the tax by at once transfering their assets abroad to a nominally non-resident trust of which they or members of their family were beneficiary residents in this country and liable to the tax.
Therefore, although there may be a case for meeting the right hon. Gentleman in making the Clause not applicable to very old trusts, I would like to consider whether the date of the operation should be some appropriate date other than the one he has proposed. It may even be before 11th November, 1964, because in a sense it has been clear since the short-term Capital Gains Tax was introduced in April, 1962, that there were advantages to be gained by this type of device. There is a case for considering what would be the appropriate date in order not to penalise legitimate transactions, but to catch transactions designed to circumvent the law as it was or was expected to be.
The right hon. Gentleman also asked whether I could give any estimate of the cost involved in making a concession of the kind suggested. I am sorry to have to tell the Committee that it is quite impossible to forecast or to give an estimate of the cost involved.
The right hon. Gentleman and the hon. Member for Gainsborough both made a point which I would like to look into between now and Report—to see whether, in view of the illustrations which they gave—which I do not accept as typical, but which, nevertheless, may be genuine—there may be a case for allowing losses to be set off against capital gains.
The right hon. Member for Orkney and Shetland stressed the importance of the interpretation of the second part of subsection (2). Admittedly, it is expressed in language which is necessarily somewhat

vague. In a Clause of this kind we are working on the assumption that the Clause will operate in respect of future trusts, whether straightforward trusts with a life interest, with a series of life interests, discretionary, or whatever it may be in the infinite variety of trusts. There will be circumstances in which apportionment of tax liability will be necessary. It may be apportionment between the owner of a life interest and the remainder, or between persons to whom discretion to apply the income can operate in the hands of the trustees.
Therefore, the only way in which one can attempt to secure justice for all concerned is to provide that the apportionment shall be in such a manner as is just and reasonable between persons having an interest in the settled property. It is impossible in a Clause of this kind to go further than that. That ensures equity and justice between all concerned. As the Committee will realise, in the event of any dispute, it would ultimately be for the Commissioners of Inland Revenue to decide what was just and reasonable in the circumstances.
I hope that with that undertaking to consider what modifications are required, the right hon. Gentleman will be prepared to withdraw his Amendment.

Sir Hugh Lucas-Tooth: On a point of order. The Minister has replied in terms somewhat wider than the Amendment. I have some issues which I intended to raise on the Question, "That the Clause stand part of the Bill". I do not know, Mr. Steele, whether you would prefer the debate to be widened, or for me to wait until that Motion.

The Temporary Chairman (Mr. Thomas Steele): I think that we would be better to leave the issue until we get to it. Mr. Heath.

Sir Kenneth Pickthorn: I think, if I may say so without arrogance—

The Temporary Chairman: Order. I thought that the right hon. Gentleman was rising to a point of order. I called the right hon. Member for Bexley (Mr. Heath).

Mr. Heath: I am sure that the Minister without Portfolio is right to say


that he will take back the Clause and look at it again. I hope that he will consider the whole Clause. He has referred to a number of points which arise on the next Amendment, as my hon. Friend the Member for Hendon, South (Sir H. Lucas-Tooth) said, dealing with allowing for losses, and so on. I am very glad that the Chancellor of the Exchequer has heard this short but important debate, because it must have brought home to him in a way which nothing else could have done the extraordinary lengths to which, knowingly or unknowingly, he has gone in the Bill, the extraordinary viciousness of the consequences of the lengths to which he has gone in the Bill, to try to block a possible loophole even against a few people, while, at the same time, being prepared to damage other people through no fault of their own.
We have heard from the Leader of the Liberal Party that the Chancellor has been prepared to go to the lengths of pursuing a course which is completely unenforceable in international law, as I believe, and certainly not enforceable in practice. If he tried to enforce it, it could cause hardship in many ways to people who are in no way blameworthy.
The Government's willingness to force an issue to extraordinary lengths in order to try to deal with a few people who might get through the net, regardless of the damage to other people in the process, has been characteristic of a good deal of this legislation and that is what has made the Committee angrier and angrier. I do not know what the explanation is. I do not believe that the Chancellor himself is the sort of person who wants to do this, or that the Minister without Portfolio is. I do not know where the momentum comes from for pursuing this course throughout this legislation, and I do not presume to suggest where, but it constantly strikes many of us that behind the Bill there is this force which is prepared to abandon any normal sense of justice in the attempt to catch a few people.
It is not enough for the Minister without Portfolio to say that we are all agreed about retrospection and then to say that he will consider the date because it strikes him that some people from 1962 onwards may have been trying to evade what the

Government now intend—a Labour Government, elected in 1964, in a Finance Bill in 1965. It is not good enough to say that we are all against retrospection and in the next breath to say that we might have to do it from 1962 just because people with a genuine case might have got mixed up with a few who are trying to avoid tax. It is not a good enough attitude to take.
Hon. Members on the Government side say, "Of course, we are against retrospection and we are in favour of savings." But their actions belie their words. I feel deeply about the attitude, which has been demonstrated during the passage of this legislation. Therefore, I hope that the Minister without Portfolio will take back the whole of the Clause and not try to carry the issue to an unenforceable point or to a point only enforceable by causing immense hardship to individuals.

12.15 a.m.

The Chancellor of the Exchequer (Mr. James Callaghan): Whatever the view one may take about any form of taxation, whether capital gains or any other, a balance has to be struck between a genuine case, such as that raised by the hon. Member for Gainsborough (Mr. Kimball), and the tax avoider. The tax avoider is thriving in Britain and has done so for many years. The practice is growing and it must be known to every hon. Member on the Opposition side who has been a member of a Government that the growth of systematic tax avoidance has reached scandalous proportions.
I would invite the help of right hon. and hon. Gentlemen opposite in fixing a balance between catching the tax avoider, who is arranging his affairs in such a way that he is avoiding what other people are genuinely paying, and the ordinary taxpayers. I hope that the right hon. Member for Bexley (Mr. Heath) will give some consideration to that. I think my hon. Friend showed clearly that he wants to draw the line between the two cases. He wanted to ensure that the genuine trust—the 1916 trust—set up in this way, would not be caught by this kind of legislation.
But I warn the Committee that it is not merely on capital gains but on all our tax arrangements that we shall make a mockery, or allow the avoiders to make


a mockery, of the ordinary taxpayers unless we act. When ordinary taxpayers feel that action is not being taken against those who take this way out, we shall be on the way down in this country.
Our attitude is to draw a distinct balance between the two cases, That is why, during our consideration of the Bill, we have been reasonable and flexible in the answers that have been given.
I assure the Committee that we shall go on examining the Bill in this way. I heard the case that was made here and I thought that there was a point here which I would try to meet. I hope that the right hon. Member for Bexley will remember that there is a genuine problem of the tax avoider who is escaping his liabilities and that this is a deeply felt grievance amongst those who know what is going on. However, we shall consider seriously the points that have been raised and see what Amendments ought to be introduced.

Sir D. Glover: I am sure that the Chancellor of the Exchequer is sincere in his desire to catch tax avoiders. I think I can say that there is no one on this side who does not want to support him on this. But the Chancellor, because he has got this bee in his bonnet, is going far beyond the bounds of reasonableness.
As I said at an early hour the other morning—and I think that this sums up the Budget—it is the same as in the case of the Christian Church, which for 2,000 years has been trying to stop adultery. Every Chancellor since the war has tried to stop tax avoidance. In the same context, the Chancellor is saying, "I have tried to overcome the difficulty. Now I have a brilliant idea. I will do away with marriage". He is saying, in effect, that while 90 per cent. of this is legitimate, because 10 per cent. of it is not he will do away with the whole lot. He has done exactly the same thing with expenses and the rest.
The right hon. Gentleman knows me well enough to know that when I say that I am with him in his desire to do away with tax avoidance, I mean that I support that genuine desire. However, he is going so far now that, in an effort to stop up a loophole for a mouse, he will kill all the remaining animals in the zoo.

Mr. Callaghan: The hon. Gentleman has got his percentages the wrong way round. Ten per cent. are genuine and 90 per cent. are not.

Sir D. Glover: It is obvious that the Chancellor is not being advised by the officials of the Treasury, but by the "importations". I am not prepared to accept, and the right hon. Gentleman cannot prove, that the great mass of the people are dishonest.

Mr. Callaghan: rose—

Sir D. Glover: That is what the right hon. Gentleman is saying. Let it go out from the Committee that the Chancellor is saying that 90 per cent. of the people are dishonest.

Mr. Callaghan: rose—

The Temporary Chairman: Order. Hon. Members would be well advised to keep to the Amendment under discussion.

Mr. Callaghan: I do not know whether the hon. Gentleman is trying to misrepresent me. I am referring to the Clause. That is all. We are discussing the Clause. If the hon. Gentleman is discussing something else, he will know whether or not he is in order. I am referring to this type of trust. I thought that that was clear.

Sir D. Glover: Even so, when the right hon. Gentleman talks about 90 per cent. of the people trying to avoid tax he is completely off the beam and he knows it perfectly well.

Mr. Grimond: I do not wish to delay the Committee, but I must comment on the speech of the Minister Without Portfolio. According to the hon. Gentleman, the Government do not know how big the mischief with which we are here concerned may be. Therefore, we may be hitting a whole range of legitimate transactions for a mischief which does not even exist. I cannot accept the view that, because the Government gave a general warning in November that tax avoidance would be legislated against, they should now introduce retrospective legislation on specific points.
I understood from the remarks of the Minister and the Chancellor that they do not deny that there are a number of genuine cases which it would be wholly unfair to catch by the process of the


Clause. I also understand that the Committee was given a specific undertaking that on Report the Government will introduce an Amendment designed to put the obvious anomalies of the Clause right. On that understanding, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. John Hall: I beg to move Amendment No. 247, in page 43, line 20. to leave out from "him" to the end of line 27 and to insert:
if and to the extent that a beneficiary under such a settlement has the immediate right to call on the trustees to transfer to him the gain which had accrued and any such gain shall be apportioned in such manner as is just and reasonable between the beneficiaries under the settlement".

The Temporary Chairman: I suggest that it would be convenient for the Committee to discuss, at the same time, Amendment No. 307, in page 43, leave out lines 23 to 27 and insert:
in the capital of the settled property; provided that except where a person has the immediate right to call on the trustees of the settlement for the transfer of the chargeable gain which has accrued the payment of the tax assessed under this subsection shall be deferred until such time as the right to the assets representing the chargeable gain or the proportionate part thereof shall have vested in possession in the person or persons assessed hereunder".
and Amendment No. 248, in line 28, leave out subsection (3) and insert:
(3) An apportioned part of any capital loss (apportioned in like as a chargeable gain hereunder) may. if such a capital loss would have been taken into account if it had accrued to trustees of a settlement resident and ordinarily resident in the United Kingdom be set off against an apportioned part of the chargeable gain treated as accruing to a beneficiary hereunder.

Mr. Hall: In this Amendment we have asked that a beneficiary resident in the United Kingdom who benefits under the terms of the non-resident trust shall only be liable to pay Capital Gains Tax if such beneficiary has the immediate right to request the trustees to transfer to him any capital gains which have accrued. In the other Amendment we have tried to ensure that it is possible to offset losses. It is extraordinary that I should have to move Amendments designed to prevent a person paying tax on something they have not received and may

never receive, but this is an extraordinary Clause.
I cannot help but comment on the interesting possibility mentioned by my hon. Friend the Member for Gains-borough (Mr. Kimball), who said, in describing discretionary trusts, that it might well be that the Chancellor himself might be a beneficiary under a trust without knowing about it. It is nice to think that on a 10-year valuation the Chancellor might be presented with an assessment for his proportion of the capital gains accruing on that particular trust. One might perhaps commend the idea to those trustees who have the power to add beneficiaries under existing trusts. It might produce quite a sizeable bill for the Chancellor if this Clause remains unaltered.
One problem is how to value these trusts. In many cases non-resident settlements will hold foreign assets and it is difficult and sometimes very costly to value those assets. It will be a cost to the beneficiary because in many cases the trustees will not have the power to pay expenses of that kind. Examples have been given if losses are not allowed. A beneficiary may benefit under two trusts. In one there may be a capital gain and in the other a capital loss. In one case he would have to pay his share of the tax on the capital gains and in the other he would have to offset that loss and, therefore, suffer very considerable hardship in consequence.
My hon. Friend the Member for Gains-borough suggested this was a form of torture, torturing A to make B pay. It is certainly producing a sort of fiscal thumbscrew in the hope that the anguished screams of the person to whom the thumbscrews are to be applied will force the trustees of a settlement to ante-pay. What happens if the trustees are prevented by the conditions of their trust from ante-ing up I do not know. Presumably, the anguished screams will go unanswered.
I cannot believe that whoever drafted this Clause had it in mind to impose the kind of injustice and hardship about which we have spoken. I have a feeling that because of the haste and speed with which the Bill was drafted a lot of Clauses have been ill-drafted and a number of things have got into the Bill which should never have got in at all. I suggest


that this Clause should be taken back in its entirety and drafted again so as to prevent the kind of injustice to which attention has been drawn.
I am sure that the Minister is thoroughly seized of this problem. He showed this in the sympathetic answer he gave to the previous Amendment. He understands the problems involved and I confidently anticipate that for the Report stage he will be drafting Amendments which will give effect to the various Amendments tabled by the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond).

12.30 a.m.

Sir Eric Fletcher: I shall not attempt to reply to the more provocative parts of the speech of the hon. Member for Wycombe (Mr. John Hall), nor will I attempt to repeat what was said earlier, when a good many of the points canvassed by these Amendments were fully discussed and disposed of, but there are two matters that should be made clear.
First, Amendment No. 247 is in its terms completely unacceptable, because it is, in effect, a wrecking Amendment. It proposes that the Clause should not operate unless a beneficiary
… has the immediate right to call on the trustees to transfer to him the gain which has accrued…
The remaining words are unnecessary.
The Committee will realise that in the case of an ordinary settlement—and, I should have thought, in the case of most settlements—a beneficiary does not have an immediate right to call on the trustees for a transfer. In the case of a discretionary trust no beneficiary has any such right—certainly not an immediate right. If, on the other hand, there is a trust in which a beneficiary has an immediate right to call for the whole of the assets, and if that beneficiary is resident in the United Kingdom and has set up a trust which technically is non-resident, it is not unreasonable that the Clause should operate to prevent what would be an obvious case of tax avoidance.
I do not think that even if the right hon. Gentleman the Member for Bexley (Mr. Heath) now thinks that there is anything particularly vicious in trying to prevent tax avoidance of that kind—

Mr. Heath: I am entirely in favour of preventing tax avoidance. I am not in favour of imposing unjustifiable hardship on innocent people in the process.

Sir Eric Fletcher: I was saying that, in so far as this Clause is aimed at preventing tax avoidance, acceptance of this Amendment would make nonsense of the Clause. It would make it nugatory. It is a wrecking Amendment. It would prevent the legitimate object, to which the right hon. Gentleman now subscribes, of trying to prevent tax avoidance.
The hon. Gentleman's second point was in substance, the effect of Amendment No. 248, which seeks to provide that an apportioned part of a capital loss should be brought into account. I have earlier, in answer to the right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for Gainsborough (Mr. Kimball), given an undertaking that we will consider how far losses should be brought into account, but I think that, for the record, I should add a word about the effect, as we understand it, of subsection (3).
It has been suggested that subsection (3) could be interpreted so as to have the effect that in any year gains accruing to the trustees are to be apportioned to the United Kingdom beneficiaries, but that any losses accruing in the same year are not to be so apportioned. This is not the intent of the Clause, and if there is doubt about it we will certainly see what changes are required. The intention of the Clause, and the effect which it is interpreted by the Government as having, is that only the net gains of the year would be apportioned to beneficiaries; that is to say, gains of the year after deducting losses of the same year. If there is any doubt about the question whether the words of the Clause give effect to that intention, I will certainly confirm the undertaking and table an appropriate Amendment on Report.

Mr. John Hall: The Minister without Portfolio said that Amendment No. 247 made nonsense of the Clause. I cannot see how it could. The Clause is nonsense to start with, and I cannot see how one could make a greater nonsense of it than it is already.
The Minister was forthcoming about references to the losses, and has given


an interpretation of subsection (3) which I do not think would be understood by most people reading the subsection. If his present interpretation of the Clause is that it should only be the net gains which are to be chargeable, I think we welcome his intention to make this much clearer, clear beyond all doubt, in which case, presumably, we shall have the appropriate Amendment on Report.
I do not think that we want to press the Amendment. I am sure that the Minister realises that there is a great deal of feeling about it and that a great deal of injustice is created by the Clause. We would all be at one with him in trying to catch the tax avoider. But it is no good treating him as if he were a motorist in the following circumstances. If one knows that on a certain stretch of road motorists habitually exceed the speed limit, one does not automatically fine all motorists using the road on the ground that one day they will exceed the speed limit. But that is what is being done here. Because someone may avoid the tax, the Government are penalising all who set up trusts for legitimate purposes.

Mr. Cole: May I put a question to my hon. Friend before he seeks to withdraw the Amendment? Since normally Capital Gains Tax will be paid by the beneficiary of the capital gain, why is it said to be tax avoidance if the beneficiary paying the Capital Gains Tax seeks to have past of the capital gain made by the trust?

Mr. Hall: I find it a little difficult to follow that, I must confess. Perhaps the Minister without Portfolio may be able to answer that point put so cogently by my hon. Friend.
In view of the reply given by the Minister and the assurance that the whole Clause will be looked at again, and that it will be amended in such a way as to do justice where justice is needed, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Sir H. Lucas-Tooth: I wish to say something about provisions of the Clause which have not yet been referred to. The

Clause applies, and applies only, while the settlor—that is, the person who makes the trust—is resident in the United Kingdom or if he was resident at the time that he made the trust.
As regards the alternative, the position is clear and no difficulty arises. Where a person resident here makes a trust, he is obviously the sort of person who would have to be dealt with by a Clause such as this, if there has to be a Clause of this kind at all. But as regards the settlor who is caught only while he is in the United Kingdom, it seems that difficulties are bound to arise. A great many trusts are made by people overseas. The Government obviously have it in mind to avoid the case of what I might describe as the genuine foreigner making a trust on people who may be resident here. An obvious case is the American who makes a trust in favour of his daughter who is married to an Englishman. I imagine that the Government would not for a moment seek to catch that sort of trust. It would create absolutely impossible difficulties.
But many trusts are made by British subjects when they are overseas. Many British subjects go overseas to earn their livelihood and have to deal with their affairs while they are there. One gets, for example, the case of a serving soldier who may spend considerable periods overseas and considerable periods in this country. As I understand subsection (1), the position will be that where such a person makes a settlement the charge will fall or not fall according to whether the individual is overseas or in this country.
This seems to me to give rise to quite impossible difficulties. In many cases, the beneficiary will not even know if he is to be chargeable and he will meet with more difficulty in trying to find out. Under the second subsection of this Clause, a beneficiary is chargeable if he is resident at the time when the charge accrues to the trustees.
I consider that those words are quite intelligent, but it occurs to me that they will allow any beneficiary the widest of loopholes merely by going overseas if he knows that the charge is about to fall. He need only go overseas for a few months in the case of a substantial charge and, while I do not at this time wish to point out loopholes for the Government


to close, this Clause is so full of loopholes and anomalies that I do not think it will even work.
I hope that the Minister without Portfolio will look at the whole of the provisions of this Clause, and not only the specific point which I have raised, to discover whether it cannot be simplified. If in so doing, there is a simplification of this charge, so much the better.

Sir Eric Fletcher: There was an inherent contradiction in the hon. Baronet's speech which was unusual for him. In so far as he suggests that the provisions of the Clause are not watertight and that an ingenious person might circumvent them, I agree with him; but then he says that we should tighten them up to make that impossible. That, I thought, was a contradiction of the first part of his argument. However much we try to improve the language of this Clause there may still be cases where, by devious ingenuity or unintentionally, it will not operate satisfactorily.
The simple object of the Clause is to deal with those individuals who, because of their ordinary residence in the United Kingdom, would be subject to capital gains tax if they did not make a trust to try to circumvent the law by settling property on themselves or on a relative. Since the trust would be ordinarily resident in this country, that must be the test so far as settlement is concerned. Admittedly, there may be difficult cases of, for example, a British subject resident overseas who makes a settlement which he is perfectly entitled to do.
There may be cases where the beneficiary is resident in the United Kingdom and if they are subject to tax in respect of property held in their own right without the intervention of a trust, then it is not unreasonable that they should accept the same liability to capital gains tax. Broadly speaking, there is justice in the way in which the Clause places liability to capital gainst tax on the beneficiaries as if they were ordinary persons of property making a capital gain without the intervention of a trust.
However, in view of what the hon. Baronet has said, I will undertake to look at this matter again to see if we can make improvements designed to tighten up the legitimate aim of trying to stop

tax avoidance and also to meet the objections which have been put to the Committee by the right hon. Member for Orkney and Shetland (Mr. Grimond).

12.45 a.m.

Mr. Geoffrey Wilson: It had not been my intention to speak on the Clause, but I shall make one observation in view of remarks made about some Amendments. I gather that it is the view of right hon. and hon. Gentlemen opposite that they had to reject various Amendments on the ground that they would increase tax avoidance. The Chancellor of the Exchequer observed that tax avoidance was increasing and had been increasing for some years. It seems to be taken for granted by right hon. and hon. Gentlemen opposite, and particularly those on the Front Bench, that this is due to some increasing defect in human nature.
If tax avoidance is increasing, is it not possible that the reason is that respectable and honest citizens are dissatisfied with the form of taxation to which they are subjected and that, suffering from a sense of injustice, they seek to avoid it? If I am right in the proposition, it means that we must look thoroughly at some of these proposals for taxation, because evasion of taxation which people feel to be unjustified taxation is a serious matter which ought to be seriously considered.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 39.—(RESIDENCE AND LOCATION OF ASSETS.)

Sir E. Fletcher: I beg to move, Amendment No. 439, in page 44, line 4, to leave out subsection (3).
We have come to the conclusion that this subsection is no longer necessary.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 40.—(VALUATION.)

Mr. MacDermot: I beg to move Amendment No. 482, in page 45, line 15, to leave out subsection (3) and to insert:
(3) The market value of shares or securities quoted on the London Stock Exchange shall,


except where in consequence of special circumstances prices so quoted are by themselves not a proper measure of market value, be as follows—

(a) the lower of the two prices shown in the quotations for the shares or securities in the Stock Exchange Official Daily List on the relevant date plus one-quarter of the difference between those two figures, or
(b) halfway between the highest and lowest prices at which bargains, other than bargains done at special prices were recorded in the shares or securities for the relevant date,
choosing the amount under paragraph (a) if less than that under paragraph (b), or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b) if less than that under paragraph (a):
Provided that—

(i) this subsection shall not apply to shares or securities for which some other stock exchange in the United Kingdom affords a more active market; and
(ii) if the London Stock Exchange is closed on the relevant date the market value shall be ascertained by reference to the latest previous date or earliest subsequent date on which it is open, whichever affords the lower market value.
This is a proposed redraft of subsection (3) in order to clear up a number of points. The subsection sets out a formula for the valuation of quoted securities and it is based on long-standing Estate Duty practice which is well-known to practitioners in this abstruse art, but it is not contained in any legislation and it appears that the formula as drafted has given rise to a number of doubts and perhaps is a little ambiguous in some places. We have redrafted it in order to clear up the questions which have arisen.
May I quickly itemise the points with which we have sought to deal? First, in the interests of precision we make it clear that the subsection deals only with the London Stock Exchange. Valuations for shares quoted on other exchanges will be made in accordance with the same principles as far as they can be applied—and this is already estate duty practice. Secondly, we make it clear that the Stock Exchange quotations to be taken into account are those which appear in the official daily list.
Thirdly, the subsection limits the use of bargains to those recorded for the relevant date. Unrecorded bargains are a matter of private knowledge and it does not seem right that they should be used as a basis for valuation. Fourthly, the term "more active market" is used instead of "larger market"

in order to make it clear that the criterion is the market for the particular shares. Finally, the opportunity has been taken to make it clear that the Stock Exchange value is to be taken as the market value only where the holding of the shares is of such a kind and size that the quoted price is a fair measure of their value. It was never intended that the quoted price should be used in special circumstances such as the sale of a controlling shareholding.
The expression in the second line,
except where in consequence of special circumstances prices so quoted are by themselves not a proper measure of market value
meets that point. I hope that the redrafting will clear up the doubts which have arisen on the original form.

Mr. Peter Walker: The principle which the Government have adopted is completely wrong. They have accepted the formula for Estate Duty purposes, but, basically, this is not for Estate Duty purposes at all, the big difference being that for valuation for Estate Duty one is talking of a valuation required for a person who will sell the assets, and for this purpose one is not doing that. This is the basis of valuation as at 6th April and, by using this formula, the Government are involved in a £477 million robbery, as I shall show by demonstrating what the difference would be if they used a fairer basis of valuation.
It can be argued that the correct basis of valuation at 6th April should be the price that a share could be bought at on that particular day, and the reason why this must be so is this. Take the example of a share which did not change price between 6th and 7th April. The person buying that share on 6th April will, for the purposes of the Bill, have his share valued at a quarter above the selling price for that day, whereas the next day he would have his share valued at the buying price for that day. In almost every type of security, this will make a considerable difference.
Even if the Government accepted a more reasonable formula, taking, say, half-way between the buying price and the selling price for the purposes of this valuation, this is the difference it would make. On Government short-dated stock, the total amount on issue being £5,000 million, it would make a difference of


£12·5 million in valuation on that day. In other Government securities, it would make a difference of £75 million in the valuation on that day. In corporation stocks, it would make a difference of £15 million in total valuation on that day, and for ordinary stocks it would make a difference of no less than £375 million. There is the total of £477 million.
Thus, by this Amendment, the Government have, on 6th April, established a price at least £477 million above what the total valuation of Stock Exchange securities should have been for that date. This means that, over the years, as those stocks are realised, the Government will enjoy 30 per cent. or in some cases 35 per cent. of £477 million in wrongful valuations. I regret that we did not put down the appropriate Amendments to the Chancellor's Amendments, but I give notice that, if the hon. and learned Gentlemen is unwilling to accept our arguments, we shall move appropriate Amendments on Report.

Mr. MacDermot: I cannot accept the arguments advanced by the hon. Member for Worcester (Mr. Peter Walker). They are based on a fallacy. This is not only a valuation as at Budget day. It covers the whole field of valuation, including valuation as at death. I should have thought that the Committee would accept that we must have the same valuation of the same asset at the same date for two purposes, namely, for Estate Duty and for Capital Gains Tax purposes.
The hon. Gentleman bases his whole argument upon a particular circumstance, namely, a Budget day valuation which would benefit one class of taxpayer. But one must also take into account that this market valuation will operate also in the case of a gift as between donor and donee. If one takes the valuation most favourable to the donor, one does injustice to donee, and vice versa.
Therefore, one has to strike a middle position so as to get fairness and justice between the different parties, and this, broadly speaking, is what the estate valuation system does. It has operated a very long time without complaint, and all we are seeking to do is to put in clear, statutory form what is a well-recognised and established practice. I must advise the Committee that whatever

defects there may have been in the original drafting, the principles of it are sound.

Mr. Peter Walker: The argument of the two examples quoted by the Financial Secretary, of the donor and the donee and the Capital Gains Tax applying at death, for that purpose, I agree, that is perfectly valid, but for all the other purposes, the purposes of people selling shares in the normal way, which constitutes the great majority of market activities, his basis of valuation is completely wrong. I agree that the Amendment improves the original draft for the purpose which he had in mind, but I give notice that we shall raise the matter again on Report.

Mr. Box: I, also, take issue with the Financial Secretary over the content and drafting of this Amendment, because it seems to me both inadequate and incomplete in several respects. During his intervention just now the hon. and learned Gentleman referred to the fact that the first half of the Amendment dealt only with the London Stock Exchange. I agree that it appears from the Amendment that no notice is taken of the prices on the associated stock exchanges, the Scottish stock exchanges and the provincial stock exchanges, whose official lists cover many hundreds of companies which are only quoted on those exchanges.
The original subsection that we are deleting seemed to cover this matter, but the Amendment does not seem to cover it. The proviso even goes so far as to say that
this subsection shall not apply to shares or securities for which some other stock exchange … affords a more active market …
in provincial exchanges. It seems to limit the matter and then not deal with it thereafter.
I wish to support what my hon. Friend the Member for Worcester (Mr. Peter Walker) has said regarding the arrival at market price. I think that we need some further explanation about how this is calculated. We know that the two bases described in the Amendment are, as it says,
the lower of the two prices … plus one-quarter of the difference between those two figures"


or halfway between the highest marking and the lowest marking, whichever is the lowest.
Market value for a unit trust is described in the Clause as
half-way between the buying and selling prices".
Paragraph 21(2) of the Sixth Schedule, dealing with quoted securities, refers to what is
sold by the owner, and immediately reacquired by him, at their market value on 6th April 1965.
I think that by any understanding of this this surely must mean the middle price whether this is measured by means of the quotation of the business marked on that day, but it seems for this purpose the basis proposed is the willing buyer, willing seller basis.
I would just give four examples of the anomalies which arise. The quotation price of British Paints on 6th April was 19s. and the markings average price was 19s. 5¼d. British Ropes quotation price was 10s. 6d. against a markings average price of 11s. 1½id. James Dawson quotation price was 15s. 7½d. against the markings average price of 16s. 3¾d. Reed Paper was even worse: the quotation price was 50s. 9d. against a markings average price of 48s. 3¾d. It will be seen that there can be a wide variation between the two bases. Surely, if that is that yardstick which is to be used, it is the higher figure rather than the lower one which should be used in this case.
1.0 a.m.
Finally, I want to deal with lines 10 and 11 of the Amendment, because they do not make sense to me. This is a little technical, and I hope that I shall be able to make it clear. The first part from line 10 is clear. It reads:
… choosing the amount under paragraph (a)"—
that is, the quotation price—
if less than that under paragraph (b)"—
that is, the markings average price, and here we get into difficulties—
or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b)"—
that is, the markings average price—
if less than that under paragraph (a).

The trouble is that (b) refers to bargains recorded on the relevant date. This seems to be a direct contradiction, because if one is to use (b), that is, the markings average price as a basis, I do not see how one can arrive at it if no such bargains were recorded on the relevant date.
I am sure that that sounds complicated, but I could explain it to the hon. and learned Gentleman if it was not clear to him that there was a direct contradiction here. It seems that the whole Amendment needs some revision. I hope that he will consider it fit to take it back to the draftsmen, and I may say that if he needs any expert help from the Opposition my hon. Friends and I will be only too willing to help.

Mr. Cole: Having studied the Amendment for the last hour, I feel that I, too, can give the Government some assistance on it. This is a gallant attempt to improve on the existing subsection (3), but it has not quite got there.
I appreciate that this is a difficult matter, and I do not want to cut across what was said by my hon. Friend the Member for Worcester (Mr. Peter Walker), because what he said was correct. I am concerned about the words in the Amendment. The Financial Secretary referred to what he called "special circumstances". It is axiomatic that we do not take any notice outside the House of Commons of what is said in debates. We take notice only of what we produce as our final answer.
I wondered what the special circumstances were. I know what the hon. and learned Gentleman has in mind, but could not they be spelt out in the Amendment? Special circumstances can cover a hundred and one different things. What about some kind of panic abroad which affects some of the shares on the Stock Exchange? Would the news of a gold strike, or a non-gold strike, be a special circumstance? Would an unfounded, or a well-founded, rumour be a special circumstance? I do not think that it is enough to refer merely to special circumstances, even with the explanation given by the Financial Secretary. We must be told what the special circumstances are. They may cost a person paying Capital Gains Tax a considerable sum of money.
I thought that I was wrong when my hon. Friend the Member for Worcester said that the operative date was Budget day. The Financial Secretary said that a number of other dates could be relevant—the date of death, the date when something passed in the way of a gift, and so on. I have looked at the interpretation Clauses in the Bill, and in neither is there a reference to the relevant date. Who decides on the relevant date other than Budget day?
As my hon. Friend said, lines 10 to 12 of the Amendment do not make sense, and perhaps I might read them.
choosing the amount under paragraph (a) if less than that under paragraph (b), or if no such bargains were recorded for the relevant date,"—
then comes the word "and", and I cannot see where it belongs—
and choosing the amount under paragraph (b) if less than that under paragraph (a).
Is it left to Hobson—"You pays your money and you takes your choice"—or is it mandatory? It strikes me as unusual that the present participle—"choosing"—is used. We would normally have said "shall choose".
I suggest that the hon. Gentleman should change these three lines into something more normal, without the reference to choosing—we do not use the word very much in legislation—and without the "and" in the middle of line 11, because with it one does not know whether an alteration or an addition is intended.
I should like to know what happens about the masses of securities in companies—especially close companies—which are quoted on provincial stock exchanges. Where are they assessed? Where is their market value under the Bill? I suggest that the Government should have another try with this Amendment.

Mr. MacDermot: I shall have another try at making myself clear, because I have answered two points in respect of which I have been asked questions by both hon. Members who have spoken. The first question concerned provincial exchanges. I sought to make it clear that the proposed subsection (3) deals only with the London Stock Exchange. Valuations for shares quoted on other

exchanges will be made in accordance with the same principles, so far as they can be applied to those exchanges. That is already the practice under the Estate Duty system. It works, and it was thought better to formulate the matter specifically in relation to the London Stock Exchange, which will be the main one; but the same principles will apply mutatis mutandis to the provincial exchanges.

Mr. Cole: Will that appear somewhere else in the Bill? It does not at the moment.

Mr. MacDermot: No; I am stating that as a matter of practice. If hon. Members feel that it would be helpful to have it written into the Bill I shall consider that.
I was asked what was meant by "special circumstances". A phrase of this kind was used precisely because so many circumstances would have to be covered that it would be foolish to try to write them into the Bill. I sought to make clear the underlying principle. The Stock Exchange value will be taken as being the market value only where the holding of shares is of a size and kind that the quoted price is a fair measure of their value. If anybody can show circumstances to prove that that would not represent a fair valuation, special circumstances would be established.
I was also asked about unit trusts. They do not fall within this provision. They are dealt with in a separate subsection.

Mr. Box: I quoted them only to show the variations in the methods of arriving at the market price. For unit trusts we have one system and in this case we appear to have the difference between the lowest marking and the highest marking on a certain day, or what we know as the probate price. Why not use the halfway mark between the lowest level of quotation and the highest level of quotation? That would be far more sensible than the probate price system.

Mr. MacDermot: It will work more fairly if the alternatives are written into the Amendment.
As for the words from line 10 onwards, if hon. Members will read them carefully they will see that they are quite


clear. If hon. Members will find it easier to look at it starting this way, the position is that if there are recorded bargains for a particular day, so that (b) is a starter, then one sees whether the amount would be less under (a) or under (b). If the amount under (a) is smaller than the amount under (b), then the amount under (a) is chosen; if the amount under (b) is the smaller, then that amount is chosen. I am sorry to have to put it in such simple language. I thought that it was simple already, but when one tries to give a child's guide to something already simple it sounds excessively simple.
The other words,
… or if no such bargains were recorded",
made it clear that if no bargains are recorded as under (b) one takes the test under (a). It is the mean price of the two prices shown in the quotation for that day, and there, are, of course, two prices shown even when no bargains are recorded.

Mr. Box: With respect, it does not show that.

Mr. Lubbock: I know that it is very late, and that it is very difficult to read these complicated words when we have been at it all day, but I would suggest, with respect to the Financial Secretary, that it might become clearer if these lines were reworded to read:
… choosing the amounts under paragraph (a) if either those amounts were less than the amounts under paragraph (b) or no such bargains were recorded for the relevant date"—
and then going on as it is at the moment:
… and choosing the amount under paragraph (b) if less than that under paragraph (a):
If that very slight amendment were made to lines 10 to 12, it would become much clearer.

Mr. Box: I want to take issue with the Financial Secretary. We are all clear about the wording in line 10, which he explained in detail to us. What he has not explained is the apparent complete contradiction in lines 11 and 12, which make a reference to paragraph (b), preceded by the words:
… if no such bargains were recorded".
But paragraph (b) deals with bargains which are recorded. This is a complete

contradiction, and I wish that the Financial Secretary could explain it in simple terms, as he did the first.

Mr. MacDermot: I can only suggest that hon. Members go away and wrap a cold towel around their heads and read it again, because it says exactly what they want it to say.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 152, in page 46, line 12, to leave out "for relief".
This is a drafting Amendment to exclude some words which are unduly restrictive.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 153, in page 46, line 14, to leave out "appeal shall lie" and to insert
question shall be determined on a reference".

The Deputy-Chairman (Sir Samuel Storey): I think that this Amendment goes together with the next one, No. 154.

Mr. MacDermot: These are drafting Amendments to deal with appeals to the Lands Tribunal.

Amendment agreed to.

Further Amendment made: In page 46, line 16, to leave out "appeal shall lie" and to insert:
question shall be determined on a reference"—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 293, in page 46, line 18, to leave out subsection (7) and to insert:
(7) In relation to land and leases of land in Scotland for any reference to the Lands Tribunal there shall be substituted a reference to the Lands Tribunal for Scotland:
Provided that until sections 1 to 3 of the Lands Tribunal Act 1949 come into force as regards Scotland, this subsection shall have effect as if for the reference to the Lands Tribunal for Scotland there were substituted a reference to a person selected from the panel of referees appointed under Part I of the Finance (1909–1910) Act 1910.
This is a drafting Amendment to make the drafting more accurate for the purposes of Scottish law.

Amendment agreed to.

1.15 a.m.

Mr. Stratton Mills: I beg to move Amendment 99, in page 46, line 29, to leave out from "to" to the end of the Clause and to add:
the general appeal provisions embodied in the Income Tax Management Act 1964".
At this hour of the night I do not wish to detain the Committee for more than two minutes. This is a probing Amendment, as I am not all sure what the procedure is when there is a dispute between the parties as to the valuation of shares other than shares quoted on the Stock Exchange.
The words in subsection (8) seemed to be very narrow. Although the operative word seems to be the word "jurisdiction", in line 31, in relation to the general commissioners, I would like an explanation from the Financial Secretary. I would also like to know why this form of wording has been chosen rather than that in my Amendment referring to general taxation principles.

Mr. MacDermot: If I understand the hon. Member correctly, he wants to ascertain why we are providing that the taxpayer has not got the option to have his appeal heard either by the general commissioners or by the special commissioners. Is that the point?

Mr. Stratton Mills: Mr. Stratton Mills indicated assent.

Mr. MacDermot: It is to ensure that one will not have different and inconsistent valuations of shares of the same company made by different bodies of commissioners. Generally speaking, when one is dealing with the valuation of shares there is a great advantage if one can get the valuation done by the general commissioners for the area in which the company is located. More often than not, these will be private companies, small, local businesses.
The general commissioners will have the advantage of local knowledge, which the special commissioners will not have, so that this is something well within their competence and it is obviously desirable when questions may arise from different valuations of even the same block of shares by different people with different interests in different parts of the country.
Clearly, it is better than having three tribunals possibly trying to adjudicate on the same question and producing different results. There should be one tribunal to produce one result and before which all interested parties could appear.

Mr. Stratton Mills: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Clause 41.—(INTERPRETATION AND OTHER SUPPLEMENTAL PROVISIONS.)

Mr. MacDermot: I beg to move Amendment 155, in page 47, line 7, to leave out from "control" to the end of line 16 and to insert:
shall be construed in accordance with paragraph 3 of Schedule 17 to this Act".
This is a drafting Amendment, designed to obviate further legislation by reference.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — Schedule 6.—(CAPITAL GAINS: COMPUTATION.)

Mr. MacDermot: I beg to move Amendment No. 294, in page 126, line 25, after "value", to insert:
of a ground annual or feu duty or".
This is a drafting Amendment to meet the requirements of Scottish law.

Amendment agreed to.

Mr. John Hall: I beg to move Amendment 259, in page 128, line 26, after "valuer", to insert "or auctioneer".
This Amendment seeks to remedy what I am sure is an unintentional omission. I am certain that it cannot be intended to leave out "auctioneer" from the various descriptions in paragraph 4 (2), because that would mean that people were to cease to dispose of or acquire their property through auctioneers.

Mr. MacDermot: Strictly, "auctioneer" is covered by "agent", but as this has given rise to some doubts I shall be


happy to accept the Amendment so as to make the position clear.

Amendment agreed to.

Amendment proposed: In page 128, line 36, at end insert:
(3) (a) In this paragraph the following expressions and symbols shall have the following meanings, namely:—


Expression
Meaning


the Deduction
The sum allowable as a deduction under paragraph 4 of this Schedule.


the Index
The Index of Retail Prices prepared for each month by the Ministry of Labour.


X
The Index for the month in which falls the date of the disposal of the asset.


Y
The Index for the month in which fall the date on which the expenditure comprising the deduction was made.

Expression
Meaning


basis figure
The Index which in arriving at any subsequent Index is treated by the Ministry of Labour as the standard by reference to which any change in the Index as between one month and another is measured.


(b) The Deduction shall in every case by multiplied by the factor X/Y

Provided that if in any case X and Y are not arrived at by an arithmetic progression from the same basis figure appropriate adjustment shall be made in the said factor to take account of the adoption of any new basis figure after the date on which the expenditure comprising the deduction was made.—[Mr. Heath.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 174, Noes 181.

Division No. 155.]
AYES
[1.22 a.m.


Agnew, Commander Sir Peter
Foster, Sir John
Loveys, Walter H.


Alison, Michael (Barkston Ash)
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Lubbock, Eric


Allan, Robert (Paddington, S.)
Fraser, Ian (Plymouth, Sutton)
Lucas, Sir Jocelyn


Allason, James (Hemel Hempstead)
Gammans, Lady
MacArthur, Ian


Amery, Rt. Hn. Julian
Gibson-Watt, David
Mackie, George Y. (C'ness &amp; S'land)


Anstruther-Gray, Rt. Hn. Sir W.
Gilmour, Ian (Norfolk, Central)
McLaren, Martin


Atkins, Humphrey
Gilmour, Sir John (East Fife)
Maclean, Sir Fitzroy


Baker, W. H. K.
Glover, Sir Douglas
Macleod, Rt. Hn. Iain


Batsford, Brian
Goodhart, Philip
Maginnis, John E.


Beamish, Col. Sir Tufton
Goodhew, Victor
Maude, Angus


Berkeley, Humphry
Gower, Raymond
Mawby, Ray


Berry, Hn. Anthony
Grant, Anthony
Maxwell-Hyslop, R. J.


Bessell, Peter
Gresham Cooke, R.
Meyer, Sir Anthony


Biffen, John
Grieve, Percy
Mills, Stratton (Belfast, N.)


Biggs-Davison, John
Griffiths, Peter (Smethwick)
Miscampbell, Norman


Birch, Rt. Hn. Nigel
Grimond, Rt. Hn. J.
Mitchell, David


Blaker, Peter
Gurden, Harold
Monro, Hector


Bossom, Hn. Clive
Hall, John (Wycombe)
More, Jasper


Box, Donald
Hall-Davis, A. G. F.
Morgan, W. G.


Boyle, Rt. Hn. Sir Edward
Harris, Reader (Heston)
Morrison, Charles (Devizes)


Braine, Bernard
Harrison, Brian (Maidon)
Mott-Radclyffe, Sir Charles


Brinton, Sir Tatton
Harvey,Sir Arthur Vere (Macclesf'd)
Munro-Lucas-Tooth, Sir Hugh


Brown, Sir Edward (Bath)
Harvey, John (Walthamstow, E.)
Murton, Oscar


Bruce-Gardyne, J.
Hastings, Stephen
Noble, Rt. Hn. Michael


Bryan, Paul
Hawkins, Paul
Nugent, Rt. Hn. Sir Richard


Buxton, Ronald
Heald, Rt. Hn. Sir Lionel
Osborn, John (Hallam)


Campbell, Gordon
Heath, Rt. Hn. Edward
Page, R. Graham (Crosby)


Carlisle, Mark
Higgins, Terence L.
Pearson, Sir Frank (Clitheroe)


Carr, Rt. Hn. Robert
Hill, J. E. B. (S. Norfolk)
Percival, Ian


Chataway, Christopher
Hirst, Geoffrey
Peyton, John


Clark, William (Nottingham, S.)
Hobson, Rt. Hn. Sir John
Pickthorn, Rt. Hn. Sir Kenneth


Cole, Norman
Hogg, Rt. Hn. Quintin
Pitt, Dame Edith


Cooke, Robert
Hordern, Peter
Powell, Rt. Hn. J. Enoch


Cooper-Key, Sir Neill
Hornby, Richard
Price, David (Eastleigh)


Corfield, F. V.
Hunt, John (Bromley)
Quennell, Miss J. M.


Crosthwaite-Eyre, Col. Sir Oliver
Irvine, Bryant Godman (Rye)
Ramsden, Rt. Hn. James


Curran, Charles
Jenkin, Patrick (Woodford)
Rawlinson, Rt. Hn. Sir Peter


Dalkeith, Earl of
Johnston, Russell (Inverness)
Redmayne, Rt. Hn. Sir Martin


Davies, Dr. Wyndham (Perry Barr)
Kaberry, Sir Donald
Ridsdale, Julian


d'Avigdor-Goldsmid, Sir Henry
Kilfedder, James A.
Rodgers, Sir John (Sevenoaks)


Dean, Paul
Kimball, Marcus
Roots, William


Deedes, Rt. Hn. W. F.
King, Evelyn (Dorset, S.)
Scott-Hopkins, James


Digby, Simon Wlngfield
Kirk, Peter
Sharples, Richard


Doughty, Charles
Lambton, Viscount
Sinclair, Sir George


Elliot, Capt. Walter (Carshalton)
Lancaster, Col. C. G.
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Langford-Holt, Sir John
Spearman, Sir Alexander


Eyre, Reginald
Legge-Bourke, Sir Harry
Stainton, Keith


Farr, John
Lewis, Kenneth (Rutland)
Steel, David (Roxburgh)


Fell, Anthony
Litchfield, Capt. John
Stodart, Anthony


Fletcher-Cooke, Charles (Darwen)
Longbottom, Charles
Studholme, Sir Henry


Fletcher-Cooke, Sir John (S'pton)
Longden, Gilbert
Taylor, Edward M. (G'gow,Cathcart)




Taylor, Frank (Moss Side)
Tweedsmuir, Lady
Wise, A. R.


Teeling, Sir William
van Straubenzee, W. R.
Wolrige-Gordon, Patrick


Temple, John M.
Walker, Peter (Worcester)
Wood, Rt. Hn. Richard


Thomas, Sir Leslie (Canterbury)
Ward, Dame Irene
Wylle, N. R.


Thomas, Rt. Hn. Peter (Conway)
Weatherill, Bernard
Younger, Hn. George


Thompson, Sir Richard (Croydon,S.)
Whitelaw, William



Tilney, John (Wavertree)
Williams, Sir Rolf Dudley (Exeter)
TELLERS FOR THE AYES:


Turton, Rt. Hn. R. H.
Wilson, Geoffrey (Truro)
Mr. Pym and Mr. G. Johnson Smith.




NOES


Albu, Austen
Gregory, Arnold
O'Malley, Brian


Alldritt, Walter
Grey, Charles
Oram, Albert E. (E. Ham, S.)


Allen, Scholefield (Crewe)
Griffiths, Will (M'chester, Exchange)
Orme, Stanley


Armstrong, Ernest
Hamilton, James (Bothwell)
Page, Derek (King's Lynn)


Atkinson, Norman
Harper, Joseph
Paget, R. T.


Bagier, Gordon A. T.
Harrison, Walter (Wakefield)
Palmer, Arthur


Baxter, William
Hazell, Bert
Panned, Rt. Hn. Charles


Beaney, Alan
Herbison, Rt. Hn. Margaret
Pargiter, G. A.


Bence, Cyril
Hobden, Dennis (Brighton, K'town.)
Park, Trevor (Derbyshire, S.E.)


Benn, Rt. Hn. Anthony Wedgwood
Horner, John
Parker, John


Bennett, J. (Glasgow, Bridgeton)
Houghton, Rt. Hn. Douglas
Parkin, B. T.


Binns, John
Howarth, Robert L. (Bolton, E.)
Pearson, Arthur (Pontypridd)


Bishop, E. S.
Hughes, Cledwyn (Anglesey)
Peart, Rt. Hn. Fred


Blackburn, F.
Hughes, Emrys (S. Ayrshire)
Perry, Ernest G.


Blenkinsop, Arthur
Hunter, A. E. (Feltham)
Popplewell, Ernest


Boardman, H.
Hynd, H. (Accrington)
Prentice, R. E.


Boyden, James
Irving, Sydney (Dartford)
Probert, Arthur


Braddock, Mrs. E. M.
Jackson, Colin
Pursey, Cmdr. Harry


Bradley, Tom
Jay, Rt. Hn. Douglas
Rees, Merlyn


Brown, Rt. Hn. George (Belper)
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Rhodes, Geoffrey


Brown, Hugh D. (Glasgow, Provan)
Jenkins, Hugh (Putney)
Roberts, Albert (Normanton)


Buchanan, Richard
Jenkins, Rt. Hn. Roy (Stechford)
Robertson, John (Paisley)


Butler, Herbert (Hackney, C.)
Johnson, Carol (Lewlsham, S.)
Robinson, Rt. Hn.K.(St. Pancras,N.)


Butler, Mrs. Joyce (Wood Green)
Johnson,James(K'ston-on-Hull,W.)
Rodgers, William (Stockton)


Callaghan, Rt. Hn. James
Jones, J. Idwal (Wrexham)
Ross, Rt. Hn. William


Carmichael, Neil
Jones, T. W. (Merioneth)
Sheldon, Robert


Carter-Jones, Lewis
Kenyon, Clifford
Shore, Peter (Stepney)


Castle, Rt. Hn. Barbara
Kerr, Dr. David (W'worth, Central)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Coleman, Donald
Lawson, George
Silkin, John (Deptford)


Conlan, Bernard
Ledger, Ron
Skeffington, Arthur


Cousins, Rt. Hn. Frank
Lever, Harold (Cheetham)
Slater, Mrs. Harriet (Stoke, N.)


Craddock, George (Bradford, S.)
Lewis, Ron (Carlisle)
Small, William


Cullen, Mrs. Alice
Lomas, Kenneth
Solomons, Henry


Dalyell, Tam
Loughlin, Charles
Stewart, Rt. Hn. Michael


Davies, G. Elfed (Rhondda, E.)
Mabon, Dr. J. Dickson
Storehouse, John


Davies, Ifor (Gower)
McCann, J.
Summerskill, Hn. Dr. Shirley


Davies, S. O. (Merthyr)
MacColl, James
Swain, Thomas


Dempsey, James
MacDermot, Niall
Thomas, Iorwerth, (Rhondda, W.)


Dodds, Norman
McGuire, Michael
Thomson, George (Dundee, E.)


Doig, Peter
Mclnnes, James
Tomney, Frank


Donnelly, Desmond
McKay, Mrs. Margaret
Urwin, T. W.


Driberg, Tom
Mackenzie, Gregor (Ruthergien)
Walden, Brian (All Saints)


Duffy, Dr. A. E. P.
Mackie, John (Enfield, E.)
Wallace, George


Dunn, James A.
MacMillan, Malcolm
Watkins, Tudor


Dunnett, Jack
MacPherson, Malcolm
Wells, William (Walsall, N.)


English, Michael
Mahon, Peter (Preston, S.)
Whitlock, William


Ennals, David
Mahon, Simon (Bootle)
Wilkins, W. A.


Evans, Albert (Islington, S.W.)
Manuel, Archie
Willey, Rt. Hn. Frederick


Fernyhough, E.
Mapp, Charles
Williams, Alan (Swansea, W.)


Fletcher, Sir Eric (Islington, E.)
Mason, Roy
Williams, Mrs. Shirley (Hitchin)


Fletcher, Raymond (Ilkeston)
Millan, Bruce
Williams, W. T. (Warrington)


Floud, Bernard
Miller, Dr. M. S.
Willis, George (Edinburgh, E.)


Foot, Sir Dingle (Ipswich)
Milne, Edward (Blyth)
Wilson, William (Coventry, S.)


Foot, Michael (Ebbw Vale)
Morris, Alfred (Wythenshawe)
Winterbottom, R. E.


Ford, Ben
Morris, Charles (Openshaw)
Woof, Robert


Fraser, Rt. Hn. Tom (Hamilton)
Mulley,Rt.Hn.Frederick(SheffieldPk)
Wyatt, Woodrow


Freeson, Reginald
Murray, Albert
Zilliacus, K.


Garrett, W. E.
Neal, Harold



Garrow, A.
Newens, Stan



Ginsburg, David
Noel-Baker, Francis (Swindon)
TELLERS FOR THE NOES:


Gourlay, Harry
Norwood, Christopher
Mr. Howie and Mr. Fitch.


Greenwood, Rt. Hn. Anthony
Oakes, Gordon

1.30 p.m.

Mr. MacDermot: I beg to move Amendment No. 483, in page 129, line 31, to leave out sub-paragraph (3) and to insert:
(3) If the person making the disposal acquired the asset—


(a) by a transfer by way of sale in relation to which an election under paragraph 4 of Schedule 14 to the Income Tax Act 1952 was made, or
(b) by a transfer to which paragraph 6 or paragraph 7 of Schedule 6 to the Finance Act 1952 applies,
(being enactments under which a transfer is treated for the purposes of capital allowances


as being made at written down value), the foregoing provisions of this paragraph shall apply as if any capital allowance made to the transferor in respect of the asset had (except so far as any loss to the transferor was restricted under those provisions) been made to the person making the disposal (that is the transferee); and where the transferor acquired the asset by such a transfer, capital allowances which by virtue of this sub-paragraph can be taken into account in relation to the transferor shall also be taken into account in relation to the transferee (that is the person making the disposal), and so on for any series of transfers before the disposal.
The Amendment extends the provisions of subsection (3) to cover two similar situations. The present provision deals with sales of assets between connected persons. It allows the Revenue, in restricting capital losses by reference to capital allowances, to look at the purchaser and seller taken together. The purpose of the Amendment is to apply the same rule where the asset passes between persons on its written down value for capital allowance purposes.

Amendment agreed to.

Further Amendments made: In page 132, line 1, leave out "value" and insert "life".

In page 133, line 26, leave out "the last foregoing paragraph" and insert
paragraph 10 of this Schedule".—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 484, in page 135, line 16, after "shall", to insert
if the personal representatives so claim".

The Deputy-Chairman: It would, I suggest, be convenient for the Committee to discuss, at the same time, Amendments Nos. 485 and 486.

Mr. MacDermot: That will be convenient, Sir Samuel.
The provision, as amended, will make it absolutely clear that there is an option to the trustees or personal representatives to claim the costs or to pass them on to the persons absolutely entitled, or the legatee, as the case may be. If the costs are passed on, the legatee or the persons absolutely entitled can get an allowance for them. There can be no double deduction. If the trustees or personal representatives themselves claim the costs, they cannot be claimed again by the beneficiary. In addition, the person to whom the property is transferred

can, in any event, claim any costs he has himself incurred.

Amendment agreed to.

Further Amendments made: In line 18, leave out from the beginning to "in" in line 19.

In line 22, leave out from "property" to end of line 25 and insert:

(a) any expenditure within paragraph 4 (2) of this Schedule incurred by him in relation to the transfer of the asset to him by the personal representatives or trustees, and
(b) except so far as taken into account under sub-paragraph (1) above, any such expenditure incurred in relation to the transfer of the asset by the personal representatives or trustees,
shall be allowable as a deduction in the computation under this Schedule of the gain accruing to that person on the disposal.

In page 135, line 34, leave out "paragraph 7 (2) of Schedule 23 to "and insert" section 73 (7) of".—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 440, in page 136, line 3, at the end to insert:
but so that if the highest part of the said income is taken into account under this paragraph in relation to an assessment to surtax the next highest part shall be taken into account in relation to any other relevant assessment, and so on".
Where the shareholder in a closed company has been charged to Surtax in respect of undistributed profits the Surtax is treated as expenditure for the purposes of computing his capital gains and the top-slicing rule applies. This Amendment deals with a case where the notional distributions exceed the top slices of his income. The effect of the Amendment is that the Surtax in question is treated either as the highest part of his income or the highest part that has not already been used up in giving him credit for Surtax in respect of other shares.

Amendment agreed to.

The Deputy-Chairman: The next Amendment is No. 371 and we can discuss with it Amendments Nos. 268 and 269.

Mr. MacDermot: On a point of order. I had meant to consult the Chair on this. There is one other Amendment with this group which has not at the moment been selected. If it is proposed it would be the intention of the Government to recommend its acceptance. In view of


that I wonder whether it could be discussed at the same time. It is Amendment No. 451.

The Deputy-Chairman: I think that that would meet the convenience of the Committee.
We can take Amendment No. 268, in page 136, line 12, at end insert:
or sold standing for felling.
Amendment No. 269, in page 136, line 17, leave out "cost" and insert "value", and Amendment No. 451, in page 136, line 13, at end insert:
and, notwithstanding the provisions of subsection 3 of section 21, capital sums received under a policy of insurance in respect of the destruction of or damage or injury to trees by fire or other hazard on such land

Mr. Simon Wingfield Digby: I beg to move Amendment No. 371, in page 136, line 20, to leave out sub-paragraph (3).
This Amendment hangs together with the other two Amendments, Nos. 268 and 269. One of them deals with the substitution of the word "value" for "cost" of the growing trees which have been disregarded and the other deals with the case of timber sold standing for fellage.

The Deputy-Chairman: Order. As the Government have announced they would be prepared to accept Amendment No. 451 I think that as it comes on the Notice Paper before No. 371 that it should be moved and that we should discuss the other Amendments with it.

Mr. Wingfield Digby: I beg to move Amendment 451, in page 136, line 13, at the end to insert:
and, notwithstanding the provisions of sub-section 3 of section 21, capital sums received under a policy of insurance in respect of the destruction of or damage or injury to trees by fire or other hazard on such land".
First, I must declare an interest, as I practise forestry. There is considerable doubt about the Bill as it now stands. One interpretation that has been placed upon it is that between the date of the acquisition and the time of disposal of trees any increment on the growing trees and any new trees planted would be subject to Capital Gains Tax. The purpose of the Amendments is to do away with that and the first argument on which

I rely is that trees are a crop, just as much as wheat or barley. Instead of growing in under a year they take a very long time, a minimum of 60 years for conifers; and for oaks—symbolic of Britain—the period is much longer. To plant an oak tree is an act of faith in the future. I am not at all clear about the meaning of sub-paragraph (3), and Amendment No. 371 is an attempt to find it out.
I believe that it would be unjust to apply Capital Gains Tax to a growing crop, and I cannot think of any crop apart from trees to which it applies. It would also be regarded as something of a breach of faith by those who have entered into dedication agreements and approved woodland schemes since the war, and who have gone to considerable expense because they believed that the Government would not introduce new taxes of this kind.
If this tax were to fall on growing trees wherever they were disposed of—by sale or otherwise—it could only result in premature felling. It would be to the advantage of people to fell their trees during their own lifetime, and that would mean that the most profitable tree to grow would be the Christmas Tree. That would be utterly undesirable.
The use of timber for railway wagons and sleepers, and for pit props, is declining, but we have it on the authority of the O.E.E.C. that there will be a timber shortage in Europe during the next 20 years or so. There is, therefore, an economic demand for timber, which will continue, and new uses for it will come in as the old uses go out.
On the question of balance of payments, it is interesting to note that we are at present spending no less than £500 million a year on imported timber. We have about the smallest forest area of any Western European country, and we could assist our balance of payments by growing more timber. I should have thought that this was the very last moment when we should be discouraging people from doing so. It is true that a lot of work is done by the Forestry Commission, but the Commission has its hands full. In addition, the private woodland owner has a great part to play in growing more trees, and thereby saving foreign exchange.
I hope that the Financial Secretary will be able to give a firm assurance that Capital Gains Tax will not fall on the growing timber.

1.45 a.m.

Mr. MacDermot: I think that I can give the Committee the assurance for which I am asked. As hon. Members will know, there are special provisions in Income Tax law for dealing with the taxation of standing timber. In various circumstances, the taxpayer can choose to have the matter dealt with under either Schedule B or Schedule D. They will probably also be aware, as many other people are, that these provisions are open to a certain amount of abuse, but that may be a reason for looking at the provisions to see whether something should be done to tighten them up. That is a matter to which, no doubt, my right hon. Friend will give attention in the future.
But it is clear that it is right, as is suggested, that there should be some sort of special treatment for purposes of Capital Gains Tax as there is for purposes of Income Tax.
I should like to make the position clear on the Amendment that we are discussing—No. 451—which is to cover the position where timber has been burned down and an insurance payment has been made. We are grateful to hon. Members for drawing our attention to the point. It was unintentional that Capital Gains Tax was leviable in these circumstances. We certainly did not intend to produce that effect, and we are happy to accept the Amendment, which will exclude it. We accept the other Amendments in principle. We think that we can perhaps improve their drafting somewhat, so I ask that they should be withdrawn.
As to Amendments No. 371 and No. 269, the effect of paragraph 18 as drafted is broadly to preserve the favourable treatment enjoyed for Income Tax purposes by the owners of woodlands—that is to say, not to take back by way of Capital Gains Tax any relief which woodlands owners may have obtained under the existing tax provisions. As sub-paragraph (3) is drafted, by adopting the measure of the original cost to determine the part of the sale price of the

woodlands which is to be cut out of the sale proceeds when the woodlands are sold, the increase in value by reason of the growth of standing timber is in effect brought into charge to Capital Gains Tax when the woodlands are disposed of with the timber standing, whereas there would be no such charge if the owner sold the timber separately. We think that the point raised on this Amendment is quite a good one, and we are glad to accept the Amendment in principle.
The object of Amendment No. 268 is to make it clear that the sums derived from the disposal of trees sold standing for felling by the purchaser are outside the scope of Capital Gains Tax where the amount is assessed under Schedule B. Paragraph 18(1) was intended to have this effect, and would have been so interpreted by the Revenue, but doubts have been raised as to whether the wording achieves this object. We shall be happy to introduce an Amendment making this quite plain. The principle of the Amendment is accepted, but we think that we can improve the wording.

The Earl of Dalkeith: Before I say anything else—I do not need to say a great deal in view of the way in which the hon. and learned Gentleman has responded—I must declare my interest as one who has been closely associated with and involved in the growing and production of trees ever since the age of about 5. I must say how very glad we are that the hon. and learned Gentleman's heart has not been so hardened by the cries of anguish which have echoed round the Chamber since the start of the Finance Bill that he has been able to look with some sympathy at these very obvious points.
I am also very thankful that the hon. and learned Gentleman has taken trouble personally to try to understand the very complex matters of taxation in respect of woodlands. The fiscal position with regard to woodlands is a matter of crucial concern to the possibility of growing trees in this country. We are also grateful that he has made genuine efforts to rectify what I think we might generously assume was a drafting error in the first place. Nevertheless, it is an error which would have completely reversed the policy of previous Governments, including the post-war Labour Government.
To give credit where credit is due, Sir Stafford Cripps, Mr. Dalton and others certainly rendered a very good service to the nation and to forestry in aiding the recovery of forestry after the devastation of the war. The error would have had serious consequences for the next 100 years had it not been put right. I think that the hon. and learned Gentleman will agree that the wording of paragraph (3) is very obscure, and I hope that when he looks at it from the point of view of redrafting it in the light of our Amendments he will take into account a number of ideas and suggestions.
I should like to ask for clarification—although, naturally, I do not expect answers at this stage of the morning—because I think that the answers will also guide the hon. and learned Gentleman in finding the right wording to effect what is desired. We are very happy to note that trees themselves are not to be taxed as a growing crop—they are quite obviously in the same category as farm crops—but when the Minister comes to redrafting to improve on our drafting, would he ensure that forestry is made no less viable as a result of any fiscal changes? It is already a very marginal industry indeed.
Secondly, I hope that the hon. and learned Gentleman will remember that forestry plays a most significant part in supporting the national economy and the balance of payments, as well as having an important contribution socially in that it helps to arrest the drift or even reverse the drift of population from our outlying districts.
Thirdly, forestry will be affected in a most profound way in the next 100 years by the fiscal incentive which is—or, equally important—is not given now. It should not be forgotten that we are importing no less than 90 per cent. of all our timber requirements at a cost of about £500 million during the past year and that we have a far smaller percentage of our land under growing trees, at 6 per cent., than is the case with the rest of Europe, at 26 per cent. The Food and Agriculture Organisation has forecast a growing shortage of timber in the world, as the readily available supplies from Russia and Canada are used up. Europe has become a net importer

of timber for the first time, but almost every other European country has learnt the lesson and embarked on a major expansion except Britain. The Zuckerman Report, 20 years ago, recommended 5 million acres, but we have only achieved 2½ million so far.
Although there will be a 70 per cent. rise in home forestry production in the next decade, this will still only just enable us to keep pace with rapidly rising consumption. Forestry, when carefully harmonised with agriculture, need not mean reduced agricultural output. Sweden, which is a country which supplies us with timber and with which we have to compete for a price, also gives fiscal incentives to its growers and also generous grants, for example, for road making. That is something which we do not enjoy.
From the taxpayers' point of view, it is cheaper to provide trees through the private sector than through the State, although we must have an expansion of both sources. The experience which is borne out in Sweden—although that is a country which suffers from an almost permanent Socialist government—

Mr. W. Baxter: On a point of order, Sir Samuel. We may be interested in this history of growing trees, but the Amendments have been accepted by the Government and what the noble Lord is now saying has nothing whatever to do with the Amendments.

The Deputy-Chairman: The Government, as I understand, are prepared to accept the Amendments with modifications. I understood that the noble Lord is putting forward his reasons for modifications.

Mr. Baxter: That is not the point upon which the noble Lord is addressing the Committee. He is making remarks about aspects of tree growing in Sweden which, he tells, us, is a Socialist State, and which we should follow. I agree with that, but surely he is out of order.

The Deputy-Chairman: The noble Lord is speaking on whether there should be fiscal concessions in this country, and I think that that is in order.

The Earl of Dalkeith: I think that these are relevant points which may help


the Financial Secretary in introducing the right phraseology when the time comes.
Sweden is a good example of a country which gives fiscal benefits and recognises that the private sector is the cheapest way from the taxpayers' point of view of producing timber. Sweden has 20 per cent. State forestry and 80 per cent. private sector of the forestry industry whereas in this country, in terms of acreage, it is 61 per cent. State and 39 per cent. private. The private sector is still recoving from the war. The first Labour Government began to aid this recovery, and we must go on with this longer yet.
The first of the Amendments deals with trees felled or cut. It is important that we should have an assurance that the definition includes trees which have been blown down or uprooted by the wind, because clearly they are in exactly the same category.
The Minister raised the question of abuses. I know that it has been in the mind of the Treasury that there are abuses about Schedules B and D and the permissive way in which a woodland owner can switch from one to the other. I assure the Minister that the Forestry Committee of Great Britain, which is the body recognised by the Government as being the spokesman for forestry, has been and always will be pleased to discuss any way in which it can help to catch anybody who is going in for abuses of these provisions. I am sure that it will be pleased to help in the future.
At the same time, when accusations of abuse are made, it is worth remembering that the forestry syndicates who are usually the target are providing the nation with a worth-while reserve of trees at a cost a great deal lower from the taxpayers' point of view than if it were being provided by the State.
I apologise for hurling questions at the Financial Secretary in the early hours of the morning and I accept that it is unreasonable to expect him to answer them straight away. I hope however that he will incorporate some of these ideas in the changes which he is to make.

Mr. Michael Noble: At such an early hour of the morning I should

start by declaring that if I have any interest in forestry it is very much diminished since I ceased to be Secretary of State for Scotland.
We are grateful to the Financial Secretary for what he said. Once again, this was one of the occasions in the Bill on which those who read the Schedule thought that they were the target of some animosity on the part of the Chancellor of the Exchequer. Many times over the last days of the debate we have heard about the aims of those on the Treasury Bench, but it has become clear to my right hon. and hon. Friends that their aims and their targets have not always been very well aligned.
We were, therefore, pleased last week at Question Time to hear the Secretary of State for Scotland say that it was still the Government's intention to support private agriculture fully. This, he realises, as I hope his hon. and right hon. Friends realise, is sensible for three main reasons. Private enterprise in forestry has done practically all the research, it has been an example in most cases of good land use and it has been the pioneer of the careful and economic use of timber.
For all those reasons, it is in the interest of the nation that it should be supported. This is the underlying reason why the Financial Secretary has accepted the principle of the Amendment and is hoping to inform private woodland owners that their future in growing trees and in playing their part in the country's timber production is assured.
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I echo the warning sounded by my hon. Friend the Member for Edinburgh, North (The Earl of Dalkeith), that it is very easy—I have some experience of this—for the Treasury, when it says that it will give something away with one hand, to try to claw it back with the other. I hope that the Financial Secretary and the Chancellor, when they consider the problem of the Schedule B and Schedule D tax, will carefully consult the people who know the industry and its problems. Although there may often appear to be abuse, I believe that, in fact, there practically never is abuse. This is a most important aspect of the growing of a crop which normally takes 50 or 60 years.

Viscount Lambton: Like other speakers from this side of the Committee, I declare an interest in this subject, and I associate myself with the thanks expressed to the Financial Secretary for having considered these Amendments in such a responsive manner. I understand him to say that this elaborate assembly of words which we have here on the Notice Paper will be taken simply to mean that growing timber will not be liable to Capital Gains Tax, but that the land on which it grows will be so liable. If that is so, we have got a quite considerable concession on the actual meaning of the words as printed.
What is to be the position of private woodlands which are owned by discretionary trusts? In the 10-yearly valuation which, I gather, the Government conceive should be taken, will land which has been cleared for replanting be revalued, and will the difference between the land under woodland and after clearance be liable to Capital Gains Tax? The point is obscure at the moment, and I hope that the Financial Secretary will be able to give some guidance on this rather complicated point now or a later stage.

Mr. MacDermot: I have been asked one or two rather technical questions, and those hon. Members who have put them have been kind enough to exonerate me from the need to reply immediately. I should like time to consider them properly and be ready to answer them when I bring forward the Amendments which I have promised for the Report stage.
I shall not seek to reply to the wider debate we have had on the subject of forestry. I have found it interesting and an agreeable relief from the rather tedious technicalities of most of the Amendments I have been moving.

Mr. Wingfield Digby: I thank the Financial Secretary for the assurance he has given on Amendments Nos. 268 and 269, that he will incorporate something on these lines at the next stage. In the circumstances, I should not wish to press Amendment No. 371.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 159, in page 136, line 22, to leave out "by way of sale".
Just to show that we do not wish to claw back what we have just given, this is another Amendment to assist the owners of woodlands. It is to remove an unintended limitation on the meaning of "disposal" in paragraph 18 (3).

Amendment agreed to.

Further Amendments made: In page 137, line 2, at beginning insert "charged or".

In page 137, line 2, after "profits", insert:
taxed or as the case may be".

In page 137, line 11, leave out "paragraph 6 (5), (6)" and insert:
sub-paragraphs (4) and (5) of paragraph 6"—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 441, in page 137, line 19, after "elsewhere" to insert:
or which have had such quoted market values at any time in the period of six years ending on 6th April 1965".
This is an Amendment to enable the shares of companies in liquidation on Budget day to be valued at their Budget day values and not by time apportionment, which could, in some circumstances, work unfairly to the taxpayer.

Amendment agreed to.

Further Amendment made: In page 140, line 39, at beginning insert "by".—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 164, in page 141, line 26, at the end to insert:
(3) For the avoidance of doubt it is hereby declared that an election under this paragraph is irrevocable
This is substantially a draft Amendment to remove a possible element of doubt.

Amendment agreed to.

Further Amendments made: In page 142, line 2, leave out from "unless" to "a" in line 3 and insert "if dealt with on".

In line 4, leave out "or" and insert "they".

In line 4, leave out from "treated" to "but".

In line 11, leave out "have been" and insert "is".

In line 43, at beginning insert "by".—[Mr. MacDermot.]

Question proposed, That this Schedule, as amended, be the Sixth Schedule to the Bill.

Sir Charles Mott-Radclyffe: I do not think that we can pass this Schedule without a short—I hope short—further discussion to elucidate what is in the mind of the Government about the rather difficult problem of valuation and how the valuation of a capital gain is to be assessed on property when it was let on Budget day but on the date of the next transfer of ownership it is with vacant possession. My hon. Friend the Member for Norfolk, South (Mr. J. E. B. Hill) referred to this on Clause 31, but I was not certain whether the right hon. Gentleman had appreciated the point, and the Amendment in the name of my hon. Friends and myself has not been selected. We were concerned to try to put the point principally in terms of agriculture, though it has wider implications in terms of any other property as well.
The best way of explaining the problem is to take an example of the sort of circumstances which happen year in and year out. Let us suppose that on Budget day, 1965, a farmer owns two farms, A and B each of 300 acres. They are next door to each other, and are of the same value and type. The farmer farms one himself, and he lets the other to a tenant.
Let us suppose that the tenant of farm B is killed in a motor accident in June. Farm B therefore comes in overnight with vacant possession. It could be argued that by reason of the unexpected death of the tenant, farm B suddenly acquires a notional accretion in value of perhaps as much as £100 an acre because of the scarcity value of any farm with vacant possession. This is due to the operation of the 1947 and 1948 Acts which, very properly, gave complete security of tenure to the tenant, thereby creating a scarcity value for any farm with vacant possession.
The asset has not been realised. All that has happened is that the tenant has died. The land is the same as it was the night before he was killed. The buildings are the same as they were the night before he was killed. The ditches and fences are the same. The only difference

is that the tenant has died and the farm is theoretically available with vacant possession. This theoretical vacant possession value has not been realised, and will not be realised until there is a change of ownership.
Now let us suppose that the owner dies in December. His two farms will be assessed for payment under the Capital Gains Tax. The farm that he farmed himself will probably not attract the Capital Gains Tax at all, as it is unlikely there will have been much appreciation in value between April and December. But the farm that had been let on Budget day, and which subsequently had vacant possession because of the death of the tenant, will have increased considerably in value.
The farmer might have taken the farm in hand because he wanted to put in his son who was about to obtain an agricultural degree and wanted to farm, and if he let it to another tenant his son would have no chance of getting the farm.
There we have two identical farms next door to each other, one attracting no Capital Gains Tax at all because it was owner occupied on Budget day, and the other attracting a huge Capital Gains Tax because on Budget day it was let, though on the date of death it was in hand. If it was a farm of 300 acres, and if the notional appreciation in value was £100 an acre, Capital Gains Tax would be assessed on about £30,000.
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This is a staggering figure in respect of the difference between two identical farms. The unfortunate son, so far from being able to go into the farm, would probably have to sell it. There would be no other way by which he could realise the capital gain on the assessment. If there is to be this rather absurd and anomalous difference in value between a farm with vacant possession and a farm subject to a sitting tenant on Budget day, and a farm with vacant possession and a farm subject to a sitting tenant on the date of death or transfer of ownership at a later date, all that will happen is that farms to rent will not be anything like so easy to come by, because anybody who might have a farm to let will be very unwilling to risk letting it again.


I should think that in the long run this is not in the best interests of agriculture either in the short term or the long term. I am not sure about the position in Scotland, but in England and Wales slightly less than 60 per cent. of farms are owner-occupied and slightly over 40 per cent. are rented. This proportion will vary from time to time, but I am certain that the National Farmers' Union would be very unwilling to see the proportion of rented land greatly diminish. I do not think that this is a good plan, when a young man who wants to farm cannot find a farm to rent. It is a very good way to learn to farm when the fixed equipment is the landlord's capital.
If the hon. and learned Gentleman will not accept the principle that the Capital Gains Tax ought to be based upon like with like he must accept the converse. If Capital Gains Tax will accrue on the difference between land subject to a sitting tenant on Budget day and the notional value of land with vacant possession on the date of death of, or transfer by, the owner, he must accept that there will be a claim for capital loss accruing if the farm in question was with vacant possession on Budget day but was let on the date of death of the owner, or the next transfer. That would normally be a depreciation in the value of the farm, and would clearly be accounted for as a capital loss.
The hon. and learned Gentleman cannot have it both ways. I want to know what views he has on this admittedly difficult problem of valuation as between Budget day and the date of the transfer of ownership, whenever it may be, bearing in mind that it might be a very long time ahead. This will have a great impact upon the future of agriculture and the proportion of owner-occupied as compared with rented land.

Mr. More: I support what my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) has said on this rather complicated matter. The Financial Secretary is entitled to say that there is an option which the taxpayer can choose in a case of this kind—that is to say, he can either choose the valuation on Budget day, as in the example given by my hon. Friend, or the method of calcu-

lation by the line that comes from the date of acquisition up to the date of the ultimate disposal.
In either case the anomaly is still there. To illustrate the sort of thing that can happen if the alternative method is adopted I worked out the case of a 200-acre farm which, let us say, was acquired one year before Budget day, and was disposed of three years after Budget day. Let us take the case of the farm which is valued on acquisition at £100 an acre, which is a reasonable value nowadays for a tenanted farm. My hon. Friend suggested that the effect of vacant possession might be to add another £100 an acre to the value. That would certainly be an under-estimate in my part of the country. This is a steadily increasing gap in values. In my area, there are already cases where the gap is as much as £200 an acre. I have, therefore, taken as an example a case where, within three years after Budget day, this gap has increased to £200 an acre.
Suppose that, in the circumstances suggested by my hon. Friend a disposal takes place three years after Budget day on a farm of this size and value. According to my calculation, the Capital Gains Tax will have to be paid on £30,000. At 30 per cent., that means that a cheque will have to be written for £9,000. The Financial Secretary may say that where there is a question of an actual realisation or sale, that is perhaps something which can be borne, but we are faced all through the Bill with cases of disposals which are not realisations, which are "deemed" to occur. This situation can arise when somebody dies, or when it is desired to transfer the farm.
In a debate which we had on a previous agricultural issue, the Financial Secretary said that he could see no logical ground for making an exception in favour of agriculture. I suggest that the logic here is on our side, that is to say that what we want to do is not to make an exception but to remove an anomaly. What is at fault here in the context of agricultural land is the valuation formula. What has happened is that in the comparison of the two figures, the acquisition and the disposal, the acquisition figure has been artificially reduced by the effect of the 1947 Agriculture Act.
I therefore hope that the Chancellor will see his way to introducing the printo that put by hon. Friends the Memfor Windsor described as "like for like"; bearing in mind that converse cases can arise which could be to the detriment of the Revenue; and bearing in mind also that with the way in which values are now going, the cases sought to be protected by the Amendment which is not selected are likely to be far more than the number of the converse cases—purely on the way in which values are now going. I beg to support my hon. Friend the Member for Windsor in what he has said.

Mr. Graham Page: I should like to put a point which is very similar to that put by hon. Friend the Members for Windsor (Sir C. Mott-Radclyffe) and Ludlow (Mr. More). They put their point in relation to agriculture, but I think that the same point arises, in principle, with regard to controlled dwellings.
The Schedule does not take into account any present statutory depression in the value of certain dwelling-houses. There is no doubt that in London and some other parts of the country there is a considerable difference between the value of a property with a controlled tenant in occupation, and the value of a property of which the owner may have obtained vacant possession.
There may be two identical dwelling-houses side by side, one with a controlled tenant and the other without a controlled tenant. The one without a controlled tenant may have arrived at that state purely fortuitously, through death or the tenant leaving or a reletting of the property. But the difference in value between the two properties may be very substantial.
If, at some future time, the present controlled tenancy comes to an end, and that property is sold, the difference between its value in April, 1965, and the sale price will be far greater than the difference in value of the uncontrolled property in April, 1965, and the price at which that might be sold. In fairness between two taxpayers in that position, this Schedule should take into account that fact that there may be in a certain dwelling-house a controlled tenancy and the value of the dwelling-house will thereby be depressed through no fault

of the owner, but by Statute. In fairness between one taxpayer and another the Schedule should give some direction that property subject to a controlled tenancy in April, 1965, should be valued as if it was not subject to a controlled tenancy. That would make for fairness between one taxpayer and another who owned for example, identical houses which were side by side.

Mr. J. E. B. Hill: Before we part with the Schedule I would like to enter a caveat. I am surprised that so few Amendments, other than Government Amendments, have been put down and that so few questions have been asked. This Schedule is one of the most complicated in the Bill and the one which most affects the practitioners of various kinds in trying to implement its provisions. I am sure that the reason is that the weight of legislation in the Bill has blown the fuses of all the professional bodies which usually consider the details of Bills and make representations to us.
There are many questions which it would be wrong for me to raise at this stage. Although I have an interest in some of them I am not sure what will be the extent of the effect of the Bill on those interests. Many questions should be asked at a later stage and I hope that the Government will take steps, between now and then, to have adequate answers ready. There are questions of degree and new records which are required to be kept. There is the problem of valuation in all its practical aspects and the grave problem of the administrative burden that this provision will place on the accounting departments of businesses and the Inland Revenue. A difficulty will arise for small farmers and businesses which do not have accounting departments capable of dealing with the provisions of the Schedule.
I hope that at a later stage we will get answers to the questions which I am sure will come forward.

Mr. MacDermot: The first three hon. Members opposite to speak on this subject raised the issue of the increase in value following the obtaining of vacant possession. They suggested, particularly the hon. Member for Windsor (Sir C. Mott-Radclyffe), that there was something notional in this increase and that one should compare like with like and


that it was not fair to tax the increase in value on vacant possession. I entirely disagree when they say that this is not comparing like with like. We are concerned here with land and the owner's interest in that land has to be valued. If there is an unrestricted freehold the interest is far more valuable than if there is a reversion of a tenancy or a reversion of a lease. What happens when vacant possession is acquired in these circumstances is that a restricted interest in the land is converted into a full and unrestricted interest in the land, and this is the clearest possible example of a capital gain.
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To take the example cited by the hon. Member for Crosby (Mr. Graham Page), it is well known that some people—and I am not now talking about Rachmans, or anybody like that, but about quite normal and properly advised investors—deliberately invest in properties which are occupied by elderly statutory tenants for the simple reason that the investors have the prospect of making a substantial capital gain when such a tenancy comes to an end. That is the purpose of the investment.
The investors know that they will get only a small income during the few remaining years of the tenancy, but they have the prospect of a substantial capital gain which, up to now, has been tax free. It is precisely to bring that kind of increase in wealth within the tax net that we are introducing the Capital Gains Tax. Therefore, at the outset I cannot accept the idea that there is something wrong with taxing this sort of capital gain. As I said earlier, this is a classic example of a passive capital gain which should be subject to tax.

Mr. Lubbock: Would not the hon. and learned Gentleman accept that at one time there were people who bought houses, which were let at controlled rents, without any thought of capital gain whatsoever? I am thinking particularly of people who have been landlords of controlled property since a date prior to the last war. Does he not think that they have some grievance, considering that they have had statutory tenants in their property for upwards of 30 years and are now to be prevented from realising any gain?

Mr. MacDermot: They will not be prevented from realising any gain on it. All that will happen is that they will be taxed on the gain when they realise it, because it is a substantial increase in wealth of a kind which falls squarely within the ambit of the tax.
The example which was given to lend support to this argument was that of the farmer who had two neighbouring farms, one of which he occupied himself while letting the other to a tenant, the tenant then being killed in a motor accident and the farmer acquiring vacant possession. There is nothing notional about that increase, for by that accident the farmer would have achieved a considerable increase in his capital. There are two possibilities: one is that he relets the farm, in which case he is back in approximately the same situation as before; or he can hand it over to his son, and if he does he is keeping this capital increment within the family. He will not have chosen to realise his gain in cash by selling the farm. In other words, he will have made a present of that capital gain to his son and there is no distinction to be drawn between that and any other case when people make gifts of assets which result in the transference of capital gain. That is an occasion for charge and must be made so if the tax is to be effective.
It was suggested that the effect of this provision would be a deterrent to people to let farms. For the example which the hon. Member for Windsor gave, I should have thought that it would operate the other way, because if the farmer wants to avoid paying the tax, the way to do it is to relet the farm.

Sir C. Mott-Radclyffe: The point I was making was that if someone wants to put his son or son-in-law into a farm or farms, his only chance of doing so is not to relet the farm when it happens to come in with vacant possession. Once he has relet it to a tenant, there is not the remotest chance, during the lifetime of that tenant, of ever getting possession again. Therefore, the only effect of the provision will be that there will be less and less rented land available.

Mr. MacDermot: But that is already the case and results from the security of tenure provision for tenant farmers. I


do not know whether the hon. Gentleman is suggesting that we should repeal the Agricultural Holdings Acts, but I imagine not and this state of affairs results from those provisions and is not the effect of the Capital Gains Tax. We are then told that we ought not to try to get it both ways. Certainly not; of course we do not.
The other example he gave was where the assumption was that at the beginning of the given period the farmer had vacant possession and then at the time he died the farm had been let. The result, therefore, would be that there would be a loss. This could be set off against the other capital gains in his possession so the valuation could be carried forward. We certainly intend to apply this logically and fairly.
The wider part of the argument put forward, particularly by the hon. Member for Ludlow (Mr. More) was really raising again the question of death being an occasion of charge. This is a case where, having realised a gain, instead of reletting or selling the farm one assumes that the farmer hands over to his son and dies shortly afterwards; the son is then farming the land and may have difficulty in raising the money to pay the Capital Gains Tax and the death duty. In the particular example, where the man had two farms, he presumably would not be in the same difficulty because he would not be farming both. There is a special death exemption of the first £5,000 of gains and we are considering other aspects, which were raised in our debates, of the case where the farmer gives a farm to his son before death. We are considering whether there should be some element of exemption there.
Another case was where a farmer retires and sells a farm to provide for his retirement. These sorts of special circumstances we have undertaken to look at again. I could not accept the argument that there is something notional in the increase in value that results from obtaining vacant possession and that should be exempted from the charge.

Mr. James Scott-Hopkins: The Financial Secretary will remember that on Clause 31 I did raise the subject of the 1947 Act and its implications. I think that it is possible to

argue that someone who has bought land from a farm since 1947, with a tenant sitting in it, does so at a lower price and knows that he is doing so. If the tenant dies then he gets vacant possession and, if there is a capital gain, it is possible to argue that the profit which would accrue might be chargeable to the Capital Gains Tax.
The Financial Secretary made the point earlier that the whole point of the Capital Gains Tax is that the owner has unrestricted interest in the land. But what about before 1947? It was because of the act of the Government in 1947 and 1948 that he lost his unrestricted interest in the land on giving security of tenure to the tenant. I accept that is right and proper.
But before the act of the Government, the owner did have an unrestricted interest. In the case of ownership of land before the Agriculture Act, 1947, where now there is disposal of than land, the valuation should be on a life to life basis. For those people who did have an unrestricted interest before 1947, should disposal occur now with capital gains accruing, then the valuation should be on a life to life basis for that category only. Since the 1947 Act changed the basis of interest in land, the Capital Gains Tax should not apply to dealings before that date.

Mr. MacDermot: I will check on that point. I think that the answer to the example the hon. Gentleman gave is that in such a case, assuming that it is farming land and not development land, the time valuation alternative would be available. It would be measured against the pre-1947 Act value. I believe that that would be the base point.

Mr. Scott-Hopkins: I am grateful to the Financial Secretary for that answer.

Mr. MacDermot: I will have to check on it.

Mr. Scott-Hopkins: I am sure that that must be the answer. I hope that the hon. and learned Gentleman will, however, give an assurance that he will look into the matter and, if necessary, put things right at a later stage if they are not as he described.

Question put and agreed to.

Schedule, as amended, agreed to.

Orders of the Day — Schedule 7.—(CAPITAL GAINS: MISCELLANEOUS RULES.)

Amendment made: In page 146, line 48, leave out "5" and insert "3".—[The Solicitor-General.]

Mr. Heath: I beg to move Amendment No. 481, in page 147, line 50, at the end to insert:
(iv) the disposal of a fixed interest Government, local authority or Dominion bond or stock where the proceeds of a sale are reinvested in a fixed interest Government, local authority or Dominion bond or stock.
This is the third occasion in Committee on which we have debated the question of capital gains on stocks and bonds in the gilt-edged market. We debated it last Wednesday, when the Chancellor made a statement to the Committee. We debated it again on the Thursday night, when his hon. Friend the Chief Secretary answered the debate, and I make no apology for raising it again tonight because it is a matter of the utmost importance.
When the Chancellor made his statement many hon. Members voiced their anxieties, in their preliminary reactions, to the fresh arrangements which he was proposing. When we debated the matter on the second occasion we were able to point to the consequences which were already being seen in the gilt-edged market. The major and lamentable consequence was that dealings had been suspended that morning for about two and three quarter hours to enable the market to adjust itself to the consequences of the Chancellor's concession, as he termed it.
Now it is possible to weigh the further consequences of the Chancellor's action. I said last Thursday that I thought that one of the major results had been to make a sudden change in the relationship between the different stocks in the market. It is now clear that the Chancellor's concession made an arbitrary alteration in the relationship between the different stocks. I pointed out that from the point of view of affects on the management of the market, changes should be of a gradual kind, but in an unprecedented way there was introduced this sudden change in the relationship between the different stocks in the market.
This has had a number of results. One has been that because this change produced such arbitrary results, there is now

a much greater degree of uncertainty in the market about any future action which may be taken. Both the jobbers and the institutions fear that there having been an arbitrary change of this kind once, further arbitrary changes may follow. This we must accept as a direct result of the Chancellor's intervention.
The second consequence of this is that because of the additional risk which stems from this uncertainty the jobbers' turn in the market has undoubtedly widened. This, again, is a direct result of the Chancellor's action and it is undesirable in the general running of the market although it is fully understandable in the position in which the market now finds itself.
2.45 a.m.
The result of this arbitrary change in the relationship between stocks means that the market is no longer the homogenous market which it was and has been throughout its history, until the intervention of the Chancellor last Wednesday night. This has certain consequences, too. It means that the stocks now have to be treated to a much greater extent individually as stocks in the market and the jobbers' books balanced for each stock in the market instead of the market being treated as one homogenous whole. This in itself has the further consequence that it makes switching extremely difficult, if not virtually impossible. Certainly, it is much more difficult than it was in the homogenous market. This is probably one of the most important consequences of the Chancellor's intervention.
It is with those particular points that this Amendment deals, because the consequence of this amendment is to remove the Capital Gains Tax in the case of stocks which are being switched in this market. The Chancellor will remember that in the original group of Amendments we separated these stocks and dealt with them individually. In this Amendment we are treating the market as a whole, which it is, and the Amendment covers the switching of all these stocks.
Since the Chancellor's intervention the position is that some stocks are Capital Gains Tax free and some are totally taxable and some, the majority, are halfway between the two. Each has a different character, depending on the relationship of the current price to the issue price


to the redemption price. This means the relationship between the stocks is nothing like as close as it was in the past and has been throughout the history of the market.
It would have been possible for the Chancellor when he considered our Amendment last week and the important factors put before the Committee by my right hon. Friend the Member for West Flint (Mr. Nigel Birch), in his admirable speech, to have rejected the Amendment and to have said that he would have adopted this particular solution of allowing stocks being switched to be free of capital gains. This would have been an alternative course of action for him to have taken instead of the course which he put before the Committee.
I have considered whether, in the new context of his intervention, this Amendment is desirable and I have come to the conclusion that the Chancellor's intervention makes it even more desirable. As a result of his intervention the fluidity in the market is greatly diminished. This Amendment will restore to a considerable degree the fluidity of the gilt-edged market. This is important from the point of view of the market itself and also for the Chancellor in the management of the National Debt.
It is important this year for the double reason of the conversion operation which the Chancellor believes it is necessary to take and also because of the large amount of Debt which he has to raise about which he told us in his Budget and in the Second Reading of the Bill. For these reasons I believe that increased fluidity in the market is essential to the Chancellor, for his own purposes, and not only for the benefit of the market itself.
There is the other aspect of the institutions in the market, and particularly the life offices. It is well known that the life offices have a very great holding of gilt-edged—I believe the figure is 12 per cent. of non-official holdings—but the important thing is that the great bulk of the l2 per cent., certainly a very large amount of it, is long term. That means that 25 per cent. of the non-official holdings of long term are with the life offices. This matter, therefore, is of great importance for them, because the Bill as it stands, with the Chancellor's concession, militates against switching, and,

therefore, militates against the effective management of their own securities—certainly that management which they have used in the past. But it is also important to the Chancellor, if I may say so, from the point of view of the management of the Debt, in which the switching by the life offices plays a very important part.
We are, therefore, constantly returning to the argument that the change we have suggested in the Amendment to exempt the gilt-edged market from Capital Gains Tax, and now to exempt switching from Capital Gains Tax, is not only important to the market itself, and what that means to the country as a whole, is not only important to the institutions which use it, but is also of fundamental importance to the Chancellor for the management of the Debt. All these things are interconnected.
I believe that the right hon. Gentleman's intervention, as we intimated at the time, caused great difficulty in the market. That has ensued. We have seen suspension of the market and a continuing state of confusion. In the market now we see uncertainty and a widening of jobbers' margins. We see a greatly decreased fluidity in the market, as well as the difficulty which the life offices will have in handling their own securities, with the difficulties this makes for the Chancellor's handling of the National Debt.
I therefore put it to the right hon. Gentleman as a matter of great importance that, particularly since his intervention last Wednesday, our Amendment should receive his urgent consideration. I urge that he should, particularly in the interests of his own high office and of the nation, consider accepting the Amendment, which would permit removing of Capital Gains Tax in respect of securities being switched in the gilt-edged market.

Mr. Callaghan: I will, of course, consider any such Amendment seriously, as the right hon. Gentleman knows. If I reached the conclusion that it was necessary to make changes, I would make changes, but I must say that at the moment I do not think that the right hon. Gentleman's case has been sustained. I must remind the Committee that I made this change at the request of the right hon. Gentleman the Member for Flint, West (Mr. Birch)—

Mr. Nigel Birch: No.

Mr. Callaghan: Oh, yes. It was the right hon. Gentleman who first put the point to me. He may feel that it was not a major point—and I am inclined to agree, in the light of a later Amendment—but it was on the basis of the letter he wrote to The Times, as well as his speech, that I felt—I should regret, perhaps, in the light of what has been said, that I should have been moved—that he had made out a case that should be answered.
Therefore, to the extent that there has been an arbitrary change in the taxation of Government stocks in this field I accept that I am responsible for it, but I should have thought that that would have been foreseen by those of the Opposition who asked that this change should be made. I think that I am entitled to say that to the Committee.
As to the question of the uncertainty created by the change amongst jobbers, we had better remove that uncertainty by my saying that I do not think that any further moves in this field need be made, so there need be no further uncertainty on that ground.
As to the switching point, I hope that the right hon. Gentleman will not mind my saying that I think that he is being very theoretical at the moment. He does not know how switching will settle down at all. I would put another opinion to him, that life offices will find—and, indeed, have found since last Thursday—many occasions for switching, and will continue to do so, and will find that it is extremely profitable that they should do so. They will be moving around in this field as they always have done from one kind of coupon to another, and there will be more variations and permutations and combinations now for them to try to find in order to get the best deal at that price.
I am no expert in this field—that I readily admit—but I can see enough of the possibilities, if one is in this field, of moving around, especially when the value of the stocks has been changed, and permanently changed, in the way it has. Therefore, I cannot accept the right hon. Gentleman's view that the fluidity of the market is impaired. It will be very interesting, over a period of six months or

so, to see how the number of bargains marked up compares day by day with the period before the change and the period after. I shall be very surprised indeed if there is any more than a marginal difference or a difference which reflects other conditions quite unrelated to the change which has been made in the taxation arrangements.
The right hon. Gentleman said that switching becomes more difficult. I simply do not accept that it does. For the reason which I have given it seems to me that switching will be just as attractive—if not more attractive—to a number of institutions and persons in this market. What the Amendment would do would be to carry me far beyond the pledge, because no pledge was ever given about local authority or Dominions stocks. Therefore, I would not feel that there was any moral obligation on the Government to act in that field. The pledge which was given was in the interests of British Government stocks. Therefore, I could not accept it on those grounds.
Above all, I think that the whole idea of leaving out a section of the market such as the gilt-edged market would mean driving a coach and horses through a very big section of the taxation arrangements. We need not dwell on tax avoidance at any length tonight, but everybody who knows anything at all about this recognises the opportunities that acceptance of the Amendment would give in this field. It may be argued by some that we ought to try to strengthen the gilt-edged market. If that were felt to be the case, I must say that this is not the method that I would choose to strengthen it. The right hon. Gentleman did not advance that argument, but I have heard the argument advanced for getting rid of the Capital Gains Tax in this field that it would improve the tone of the market. If it is necessary to improve the tone of the gilt-edged market in the months ahead, I would certainly find other ways of doing it than accepting an Amendment like this one.
With respect to the right hon. Gentleman, I think that his case is unproven. I do not think that there is anything like enough experience for him to be so dogmatic about the conclusions that he arrived at, and, therefore, I cannot


recommend the Committee to accept the Amendment.

Mr. Lubbock: I want to draw the attention of the Chancellor to the effects of his refusal on one very important class of investors, the building societies. The Chancellor said that if the Amendment were accepted it would drive a coach and horses through the tax provisions in the Bill. I say—I will give figures to prove my case—that the Chancellor is driving a coach and horses through the Government's declared policy of encouraging private home ownership.
I find this attitude a very odd one and inconsistent with what was said on a previous Finance Bill by the Chancellor of the Duchy of Lancaster when we were discussing taxation on building societies. It was on an Amendment moved by my hon. Friend the Member for Huddersfield, West, who is now Lord Wade. The Chancellor of the Duchy said:
This is a proposal to relieve building societies of Profits Tax. I believe that there is a case—though I do not put it today—for relieving them of Income Tax as well. I think that in the light of this Finance Bill we have to get away from the conventional outlook of the Royal Commission on the principles of taxation."—[OFFICIAL REPORT, 29th May, 1963; Vol. 678, c. 1399.]
That is what I ask the Chancellor of the Exchequer to do this evening. He will be aware that the effect of Section 58(1) of the Buildings Societies Act, 1962, is to permit building societies to invest only in those classes of investment which have been prescribed for the purpose by the Chief Registrar of Friendly Societies with Treasury consent.
This class of investment comprises Government quoted dated and Government guaranteed stock, Commonwealth and local authority securities, and the societies are also allowed to invest in local authority mortgages and deposits, but not in any shares issued by any limited company. The societies have invested very large amounts in the quoted securities which I have mentioned because by so doing they can have funds available through investment in easily realisable form for their day to day business and against demands which fluctuate with the period of the year. Any capital gain which building societies have been able to make hitherto from the judicious selection of their investments have been

free from taxation apart from the short-term Capital Gains Tax which was imposed by the previous Government. That did not trouble them, and has constituted over the years a useful increment to reserve.
3.0 a.m.
Mr. Norman Ellis, Chairman of the Leicester Permanent Building Society, is reported in the May issue of "The Building Societies Gazette" as stating:
We do strongly object to being penalised by retrospective taxation which destroys confidence in planning future development. On our present portfolio of Government stocks, the effect of a 35 per cent. Capital Gains Tax will be to deprive our reserves in the future of £428,000. As a result, our ability to attract funds for lending will be restricted by no less than £20 million. If this is to be the effect on our society holding £9,500,000 in Government securities, what will be the volume of funds denied to prospective house owners, bearing in mind that in total, building societies had £300 million invested in Government securities at the end of 1964?
Of course, the answer, pro rata with that £300 million as against the £9½ million invested by the Leicester Permanent Building Society, will be that intending house purchasers will be deprived of about £600 million which would otherwise have been available for lending to them had it not been for the punitive provisions of the Bill. That is the blow which the Chancellor is dealing the ordinary would-be house owners.

Mr. Callaghan: No blow has been dealt either to the building societies or prospective house owners. Has the hon. Member no figures indicating the benefit which the Leicester Permanent Building Society will get from the Corporation Tax and for how much more money it will be able to lend because of the operations of that part of the Bill?

Mr. Lubbock: We are concerned only with Capital Gains Tax and I am quoting the Leicester Permanent Building Society figures to show the huge reduction in reserves which will be forced on it and the reduction in the amount of money consequently available for lending.
I have done my own calculations for the building societies as a whole, and when we come to Corporation Tax I shall have some Amendments which, I hope, the Chancellor will be prepared to accept. The unhappy effect of a Capital Gains Tax so far as the building


societies are concerned is fairly obvious. While some societies have preferred to invest in local authority mortgages and deposits and will not, therefore, suffer in any way because of this new tax, most have invested in quoted securities because those are more speedily available. The new tax, working within circumscribed limits, makes for great inequality as between one society and another, notwithstanding that the law imposes stricter limits on building societies than on most other bodies.
Building societies must keep a certain proportion of reserves in order to maintain their trustee status, and if a society's reserves fall near to the minimum requirement any diminution in the amount transferred to reserve must mean a reduction in the society's rate of expansion when funds become more plentiful again at the end of the present credit squeeze. That, in turn, ultimately means that there will be fewer home loans not only from the Leicester Permanent Building Society, but also from all the others which are in exactly the same boat.
I put it to the Chancellor that not only myself but the Building Societies Association has said that this concession would be of great value to it and that it would like to see the Amendment accepted.

Mr. Birch: I thought that the exchange between the hon. Member for Orpington (Mr. Lubbock) and the Chancellor was hardly relevant to the Amendment. The hon. Member for Orpington was speaking against the application of the Capital Gains Tax to gilt-edged securities. That was the subject of an Amendment which we discussed last week, and was hardly relevant to the question of switching.
I hope that the Chancellor will not try to pin on me the muddle which he has created. I moved an Amendment to exempt all gilt-edged securities from the Capital Gains Tax. What he has done is to exempt some of them, to make some of them liable and to make some of them "spotted dogs", partially liable and partially not liable. Anybody should have realised that that would cause chaos in the market. If one introduces such a proposal at midnight on a Wednesday, one commits a bit of technical buffoonery which is beyond belief. It is staggering.

For the Government Broker does not deal on a Thursday morning before Bank Rate is announced. If one intends to do something of this sort, which I believe to be wholly wrong, one should explain it over the weekend and possibly issue a White Paper so that people have some idea of what is intended. What the Chancellor did was wholly wrong and was bound to produce the results which were. in fact, produced.
One or two points have not been mentioned on the Amendments about switching. One of the troubles for the life offices at the moment arises from the fact that the prices of gilt-edged securities in the market are below their book price. When that happens, the life offices are locked in, as it were, in the sense that if they sell at below the book price they are immediately liable to Capital Gains Tax.
Suppose that gilt-edged securities rise to their book value. One of the reasons which induces life offices to hold gilt-edged securities is that they can get a rather better yield through switching operations. Dealing on the market one against another brings up the yield and makes gilt-edged more attractive relative to debentures than otherwise would be the case. The Bill makes that more difficult. There will, of course, be switching, but there will be far less of it, and dealings will be in smaller amounts.
We may be able to debate the point later, so I will not pursue it at this hour, but the Bill will make the management of the Debt more difficult. When a gilt-edged security is maturing, getting near its time, what generally happens is that people sell it and buy something else. Instead of that, in future the tendency will be to hold the security and to convert it, because if it is converted the Capital Gains Tax does not apply, whereas if it is held, it does apply.
The object of the Amendment is simply to provide that, if someone keeps his money in the gilt-edged market and does not disinvest, he does not pay the tax until he does finally disinvest. He does not get off the tax ultimately. but he does not have to pay it now. As matters stand, the whole business of Debt management will be about twice as difficult because the Government Broker, the Bank of England and the Treasury will not know what is likely to happen if they


offer a conversion stock at the end. This is a very technical point, but I think that the Chancellor will find that the whole management of the Debt will be about twice as difficult.
The effect of the prohibition of switching will be that people will stay fixed and they will not swap out of a security which is maturing. The Chancellor will face a situation in which the Government will either have to pay in cash or offer a conversion stock but not know how it will be received. The confusion in the market in future will be great. I do not want to say any more about it now. It is a highly technical subject. In my view, the Chancellor has made a mistake here, and I hope that he will consider the matter again before Report.

Sir Alexander Spearman: My right hon. Friends have made an overwhelming case showing that, if there is a great diminution of switching, it will do great damage to Debt management. I gather that the Chancellor does not deny that, but he says that there will not be less switching. I ask him to take some expert advice on this. I assure him that there is less switching and there will be less.
Broadly speaking, there are two sorts of switching by life offices. One is called policy switching, when they switch from a long-dated stock to a short, or vice versa; and in this the advantages may be so great that it would be worth the cost of paying tax. But the vast bulk of switching is not policy switching at all. It is tactical switching to get a slight advantage.
As my right hon. Friend the Member for Flint, West (Mr. Birch) said, they hold gilt-edged stocks for this reason, because they can secure that extra result. The advantage of each switch is so small that it would become quite unfavouarble to have to pay Capital Gains Tax. It would cease to be worth while. Undoubtedly, there will be a great diminution of this switching.
What will the Chancellor gain by the insurance companies not having this advantage? His whole object is to restrict spending, but it will not have any effect on spending at all. It is always agreeable to get something for nothing, and paying

something for something may be advisable. Here, however, the Chancellor is losing something and gaining nothing.

Mr. Heath: The Chancellor said that he would, naturally, consider anything said in this debate, but he added that he did not propose to make any change and wanted to make that absolutely clear. He is entitled to say that, and he indicated that he wished to obtain certainty.
But, of course, the right hon. Gentleman went on to create more uncertainty by adding that, if further measures were required in the gilt-edged market in order to strengthen it, he would take them. He would not take this sort of measure, but he failed to indicate what sort of measure he would take. It is this sort of statement by the right hon. Gentleman that produces further uncertainty in an already confused market. This fact has to be faced. We have had so much experience of it, from the preliminary statement about the Corporation and Capital Gains Taxes last November, continuing through the handling of our affairs, until now, tonight, we have this further statement that further action will be taken.
3.15 a.m.
I hope that the Chancellor will not return to the theme of his statement last Wednesday night, that he was adopting our proposals. As my right hon. Friend the Member for Flint, West (Mr. Birch) has made plain, there was no proposal on the Notice Paper that bore the least resemblance to the statement the Chancellor made in his speech last Wednesday night. In none of the speeches in this Committee last Wednesday night was there the slightest him of the sort of statement with which he came out. I do not think that in any of the speculation by the experts in the Press beforehand there was any suggestion that this course might be adopted. I therefore hope that the Chancellor, as he normally does, will take firmly and squarely on his own shoulders the responsibility for the conception of such a device and for putting it forward and for saying the Committee ought to carry it. We made our position plain on the last occasion by moving an Amendment to exempt the gilt-edged market from Capital Gains Tax.
So again, tonight, we want to make our position equally plain. We do not want


the Chancellor and his hon. and right hon. Friends saying that it is our suggestion which they have adopted and, therefore, I urge my hon. and right hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 166, Noes 177.

Division No. 156.]
AYES
[3.16 a.m.


Agnew, Commander Sir Peter
Goodhart, Philip
Monro, Hector


Alison, Michael (Barkston Ash)
Goodhew, Victor
Morrison, Charles (Devizes)


Allan, Robert (Paddington, S.)
Gower, Raymond
Mott-Radclyffe, Sir Charles


Allason, James (Hemel Hempstead)
Grant, Anthony
Munro-Lucas-Tooth, Sir Hugh


Amery, Rt. Hn. Julian
Gresham Cooke, R.
Murton, Oscar


Anstruther-Gray, Rt. Hn. Sir W.
Grieve, Percy
Noble, Rt. Hn. Michael


Atkins, Humphrey
Griffiths, Peter (Smethwick)
Nugent, Rt. Hn. Sir Richard


Baker, W. H. K.
Gurden, Harold
Osborn, John (Hallam)


Batsford, Brian
Hall, John (Wycombe)
Page, R. Graham (Crosby)


Beamish, Col. Sir Tufton
Hall-Davis, A. G. F.
Pearson, Sir Frank (Clitneroe)


Berry, Hn. Anthony
Harrison, Brian (Maldon)
Percival, Ian


Biffen, John
Harvey, Sir Arthur Vere (Macclesf'd)
Peyton, John


Biggs-Davison, John
Harvey, John (Walthamstow, E.)
Pickthorn, Rt. Hn. Sir Kenneth


Birch, Rt. Hn. Nigel
Hastings, Stephen
Pitt, Dame Edith


Blaker, Peter
Hawkins, Paul
Powell, Rt. Hn. J. Enoch


Bossom, Hn. Clive
Heald, Rt. Hn. Sir Lionel
Price, David (Eastleigh)


Box, Donald
Heath, Rt. Hn. Edward
Pym, Francis


Boyle, Rt. Hn. Sir Edward
Higgins, Terence L.
Quennell, Miss J. M.


Braine, Bernard
Hill, J. E. B. (S. Norfolk)
Ramsden, Rt. Hn. James


Brinton, Sir Tatton
Hirst, Geoffrey
Rawlinson, Rt. Hn. Sir Peter


Brown, Sir Edward (Bath)
Hobton, Rt. Hn. Sir John
Redmayne, Rt. Hn. Sir Martin


Bruce-Gardyne, J.
Hogg, Rt. Hn. Quintin
Ridsdale, Julian


Bryan, Paul
Hordern, Peter
Rodgers, Sir John (Sevenoaks)


Buxton, Ronald
Hornby, Richard
Roots, William


Campbell, Gordon
Hunt, John (Bromley)
Scott-Hopkins, James


Carlisle, Mark
Irvine, Bryant Godman (Rye)
Sharples, Richard


Carr, Rt. Hn. Robert
Jenkin, Patrick (Woodford)
Sinclair, Sir George


Clark, William (Nottingham, S.)
Johnson Smith, G. (East Grinstead)
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Cole, Norman
Johnston, Russell (Inverness)
Spearman, Sir Alexander


Cooke, Robert
Kaberry, Sir Donald
Stainton, Keith


Cooper-Key, Sir Neill
Kilfedder, James A.
Stodart, Anthony


Corfield, F. V.
Kimball, Marcus
Studholme, Sir Henry


Crosthwaite-Eyre, Col. Sir Oliver
King, Evelyn (Dorset, S.)
Taylor, Edward M. (G'gow,Cathcart)


Curran, Charles
Kirk, Peter
Taylor, Frank (Moss Side)


Dalkeith, Earl of
Lambton, Viscount
Teeling, Sir William


Davies, Dr. Wyndham (Perry Barr)
Lancaster, Col. C. G.
Temple, John M.


d'Avigdor-Goldsmid, Sir Henry
Langford-Holt, Sir John
Thomas, Sir Leslie (Canterbury)


Dean, Paul
Legge-Bourke, Sir Harry
Thomas, Rt. Hn. Peter (Conway)


Deedes, Rt. Hn. W. F.
Lewis, Kenneth (Rutland)
Thompson, Sir Richard (Croydon, S.)


Digby, Simon Wingfield
Litchfield, Capt. John
Tilney, John (Wavertree)


Doughty, Charles
Longbottom, Charles
Turton, Rt. Hn. R. H.


Elliot, Capt. Walter (Carshalton)
Longden, Gilbert
Tweedsmuir, Lady


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Loveys, Walter H.
van Straubenzee, W. R.


Eyre, Reginald
Lubbock, Eric
Walker, Peter (Worcester)


Farr, John
Lucas, Sir Jocelyn
Ward, Dame Irene


Fell, Anthony
Mackie, George y. (C'ness &amp; S'land)
Weatherill, Bernard


Fletcher-Cooke, Charles (Darwen)
McLaren, Martin
Whitelaw, William


Fletcher-Cooke, Sir John (S'pton)
Maclean, Sir Fltzroy
Williams, Sir Rolf Dudley (Exeter)


Foster, Sir John
Maginnis, John E.
Wilson, Geoffrey (Truro)


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Maude, Angus
Wise, A. R.


Fraser, Ian (Plymouth, Sutton)
Mawby, Ray
Wolrige-Gordon, Patrick


Gammans, Lady
Maxwell-Hyslop, R. J.
Wood, Rt. Hn. Richard


Gibson-Watt, David
Meyer, Sir Anthony
Wylie, N. R.


Gilmour, Ian (Norfolk, Central)
Mills, Stratton (Belfast, N.)
Younger, Hn. George


Gilmour, Sir John (East Fife)
Miscampbell, Norman
TELLERS FOR THE AYES:


Glover, Sir Douglas
Mitchell, David
Mr. MacArthur and




Mr. More.




NOES


Albu, Austen
Blenkinsop, Arthur
Castle, Rt. Hn. Barbara


Alldritt, Walter
Boardman, H.
Coleman, Donald


Allen, Scholefield (Crewe)
Boyden, James
Conlan, Bernard


Armstrong, Ernest
Braddock, Mrs. E. M.
Cousins, Rt. Hn. Frank


Atkinson, Norman
Bradley, Tom
Craddock, George (Bradford, S.)


Bagier, Gordon A. T.
Brown, Rt. Hn. George (Belper)
Cullen, Mrs. Alice


Baxter, William
Brown, Hugh D. (Glasgow, Provan)
Dalyell, Tam


Beaney, Alan
Buchanan, Richard
Davies, G. Etfed (Rhondda, E.)


Bence, Cyril
Butler, Herbert (Hackney, C.)
Davies, S. O. (Merthyr)


Bennett, J. (Glasgow, Bridgeton)
Butler, Mrs. Joyce (Wood Green)
Dempsey, James


Binns, John
Callaghan, Rt. Hn. James
Dodds, Norman


Bishop, E. S.
Carmichael, Neil
Doig, Peter


Blackburn, F.
Carter-Jones, Lewis
Donnelly, Desmond




Driberg, Tom
Kenyon, Clifford
Peart, Rt. Hn. Fred


Duffy, Dr. A. E. P.
Kerr, Dr. David (W'worth, Central)
Perry, Ernest G.


Dunn, James A.
Lawson, George
Popplewell, Ernest


Dunnett, Jack
Ledger, Ron
Prentice, R. E.


English, Michael
Lever, Harold (Cheetham)
Probert, Arthur


Ennals, David
Lewis, Ron (Carlisle)
Pursey, Cmdr. Harry


Evans, Albert (Islington, S.W.)
Lomas, Kenneth
Rees, Merlyn


Fernyhough, E.
Loughlin, Charles
Rhodes, Geoffrey


Fitch, Alan (Wigan)
Mabon, Dr. J. Dickson
Roberts, Albert (Normanton)


Fletcher, Sir Eric (Islington, E.)
McCann, J.
Robertson, John (Paisley)


Fletcher, Raymond (Iikeston)
MacColl, James
Robinson, Rt. Hn.K.(St. Pancras,N.)


Floud, Bernard
MacDermot, Niall
Rodgers, William (Stockton)


Foot, Sir Dingle (Ipswich)
McGuire, Michael
Ross, Rt. Hn. William


Foot, Michael (Ebbw Vale)
Mclnnes, James
Sheldon, Robert


Ford, Ben
McKay, Mrs. Margaret
Shore, Peter (Stepney)


Fraser, Rt. Hn. Tom (Hamilton)
Mackenzie, Gregor (Rutherglen)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Freeson, Reginald
Mackie, John (Enfield, E.)
Silkin, John (Deptford)


Garrett, W. E.
MacMillan, Malcolm
Skeffington, Arthur


Garrow, A,
MacPherson, Malcolm
Slater, Mrs. Harriet (Stoke, N.)


Ginsburg, David
Mahon, Peter (Preston, S.)
Small, William


Gourlay, Harry
Mahon, Simon (Bootle)
Solomons, Henry


Greenwood Rt. Hn. Anthony
Manuel, Archie
Stewart, Rt. Hn. Michael


Gregory, Arnold
Mapp, Charles
Summerskill, Hn. Dr. Shirley


Grey, Charles
Mason, Roy
Swain, Thomas


Griffiths, Will (M'chester, Exchange)
Millan, Bruce
Thomas, Iorwerth (Rhondda, W.)


Hamilton, James (Bothwell)
Miller, Dr. M. S.
Thomson, George (Dundee, E.)


Harrison, Walter (Wakefield)
Milne, Edward (Blyth)
Tomney, Frank


Hazell, Bert
Morris, Alfred (Wythenshawe)
Urwin, T. W.


Herbison, Rt. Hn. Margaret
Morris, Charles (Openshaw)
Walden, Brian (All Saints)


Hobden, Dennis (Brighton, K'town)
Mulley,Rt.Hn.Frederick(SheffieldPk)
Wallace, George


Horner, John
Murray, Albert
Watkins, Tudor


Houghton, Rt. Hn. Douglas
Neal, Harold
Wells, William (Walsall, N.)


Howarth, Robert L. (Bolton, E.)
Newens, Stan
Whitlock, William


Howie, W.
Noel-Baker, Francis (Swindon)
Wilkins, W. A.


Hughes, Emrys (S. Ayrshire)
Norwood, Christopher
Willey, Rt. Hn. Frederick


Hunter, Adam (Dunfermline)
Oakes, Gordon
Williams, Alan (Swansea, W.)


Hynd, H. (Accrington)
O'Malley, Brian
Williams, Mrs. Shirley (Hitchin)


Irving, Sydney (Dartford)
Oram, Albert E. (E. Ham, S.)
Williams, W. T. (Warrington)


Jackson, Colin
Orme, Stanley
Willis, George (Edinburgh, E.)


Jay, Rt. Hn. Douglas
Page, Derek (King's Lynn)
Wilson, William (Coventry, S.)


Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Paget, R. T.
Winterbottom, R. E.


Jenkins, Hugh (Putney)
Palmer, Arthur
Woof, Robert


Jenkins, Rt. Hn. Roy (Stechford)
Pargiter, G. A.
Wyatt, Woodrow


Johnson, Carol (Lewisham, S.)
Park, Trevor (Derbyshire, S.E.)
Zilliacus, K.


Johnson, James(K'ston-on-Hull,W.)
Parker, John



Jones, J. Idwal (Wrexham)
Parkin, B. T.
TELLERS FOR THE NOES:


Jones, T. W. (Merioneth)
Pearson, Arthur (Pontypridd)
Mr. Ifor Davies and




Mr. Harper.

Amendment made: In page 148, line 32, leave out "being retained" and insert "retained being".—[The Solicitor-General.]

The Solicitor-General: I beg to move Amendment No. 169, in page 148, to leave out lines 41 to 43 and to insert:
the two companies shall be treated as if any assets included in the transfer were acquired by the one company from the other company for a consideration of such amount as would secure that on the disposal by way of transfer neither a gain or a loss would accrue to the company making the disposal, and for the purposes of Part II of Schedule 6 to this Act the acquiring company shall be treated as if the respective acquisitions of the assets by the other company had been the acquiring company's acquisition of them:
Provided that this sub-paragraph shall not apply in relation to an asset which, until the transfer formed part of trading stock of a trade carried on by the company making the disposal or in relation to an asset which is acquired as trading stock for the purposes of a trade carried on by the company acquiring the asset.

Subsection (2) of paragraph 7 of the Schedule provides that where, under a scheme of reconstruction or amalgamation, one company takes over the whole or part of the business of a second company, the second company receiving no consideration for the transfer of the business—except by the other company taking over the whole or part of the liabilities of the business—any gain accruing to the transferring company on the disposal to the other company of any assets included in the transfer is not to be a chargeable gain.
In this matter the subsection as drafted follows the substance of the Finance Act, 1962, which provides miscellaneous rules appropriate to a short-term tax. But there has to be a difference in treatment according to whether one is dealing with a short-term tax or a long-term tax. In the case of a short-term tax it is unlikely that there will be such a reconstruction or amalgamation of two businesses twice


within the space of the short-term tax time limit. But for the purpose of the long-term tax we submit that there should be no charge on the transferring company when it disposes of its assets, but that the company which takes over those assets should be treated as taking them over as if it had acquired them when they were in fact, acquired by the transferring company.
The consequence of this is, that when the acquiring company comes to sell those assets to some third party the gain made by both the first and second companies will at that time be brought into charge. That is what the first part of the Amendment does.
The Committee is obviously waiting eagerly for me to come to the proviso. Let me set the minds of hon. Members opposite at rest; it does not do more than provide—as is generally the case—for the distinction between capital transactions and stock-in-trade. That is the purpose of the proviso and I hope that without more ado the Committee will accept the Amendment.

Amendment agreed to.

3.30 a.m.

Mr. Michael Alison: I beg to move Amendment No. 573, in page 149, line 6, at the end to insert:
(2) Any gain accruing to a person disposing of his business other than by the transfer referred to in the foregoing paragraph, insofar as the total consideration for the disposal including the gain are forthwith invested in Government securities or saving certificates, shall be treated as though for the disposal here referred to neither a loss nor a gain occurred.
I shall not detain the Committee very long at this hour of the morning, but I wish to raise a very important point of principle. I hasten to add, for the benefit of the Chancellor, that this is not a matter in which the principle of the Capital Gains Tax itself is at stake, but the principle of justice in its most basic and fundamental form—whether or not there should be one law for the rich and another for the poor. It seems to me that this principle is quite explicitly written into the Bill as it is at present drafted. The question at issue is simply described, and I hope that the Committee will forgive me if I refer to its main points, even if I oversimplify in the process.
The Committee will note that paragraph 8 of the Schedule provides that

where a business is transferred to a company as a going concern in exchange for shares—this is the bull point; in exchange for shares—any gain accruing by this kind of disposal—I would draw the Committee's attention to the specific use of the word "disposal", which is of some significance—is not a chargeable gain so far as capital gains have been made. This is a concession of considerable scope and significance.
Let us imagine that a business has accrued over the years such capital gains as to have realised a capital gain which can be computed at £10,000. In so far as this capital gain and the principle sum to which it is attached is in exchange for shares in the company which took over the business, that £10,000-worth of capital gains remain inviolate, is not affected by the Capital Gains Tax, and maintains its virgin integrity as a capital gain.
If it is transferred for shares, the seller of the business has a completely unspoiled £10,000-worth of capital gains, but in shares and not in cash. Suppose that the business is not exchanged for shares but is sold for cash because nobody will offer the shares. That cash for which the business is sold attracts the 30 per cent. Capital Gains Tax and the person involved, so far from being left with the equivalent of £10,000-worth of shares, is left with £7,000 cash, which he may proceed to reinvest in the same shares that the taking over company may have offered for the business, but he has this 30 per cent. discount. The bite of this distinction goes hard and deep in the case of people who wish to retire and to dispose of their business in this way.
There will always be a large number of people, particularly small business people with small firms, who wish, at a certain time, to dispose of the business which they have built up over the years. Suppose that businessman A has built up his firm and accrued considerable capital gains on the original assets and has the good fortune to find a large company which will take over his small private undertaking in exchange for shares. The totality of his capital gains will be restored to him in the share equivalent, and he will therefore enjoy the full benefit of the estimated income, inviolate and unviolated by the Capital Gains Tax.
But poor businessman B, in precisely the same circumstances and who has built up his business with precisely the same integrity and hard work, is unfortunate enough not to find a company which will take him over and can effect his retirement only by selling for cash. He sells for £10,000, but gets only £7,000. He may reinvest in precisely the same shares, but he has only £7,000 with which to do it.
There seems to be no equity or logic to justify this discretion which is the sort of discrimination which will bite hard on people contemplating retirement. It means that one person in precisely similar circumstances to another and who has worked equally hard will suffer a disadvantage simply because he is unable to exchange his business for shares in the company which is taking him over.
Indeed, the discrimination goes deeper and is worse than I have so far described. It positively favours the large, prosperous businesses which are taken over. Neither I nor, I think, any of my hon. Friends has any quarrel with the principle that when a company is taken over in exchange for shares, there should be no Capital Gains Tax. These sort of takeovers help in preserving the continuity of management and it would certainly assist in the amalgamation of firms into large units which is undoubtedly beneficial to the economy and it would be to the advantage of the Chancellor if, as often as possible, there were cash take-overs.
When there is a cash take-over it is almost certain that some of the money will be spent thereby creating pressure of demand on the economy. When there is a share take-over no such pressure arises. It is desirable that we should encourage businesses to be taken over by shares, but this sort of transfer of a business to a larger company is to take place only where the business is of a considerable size. It is unlikely that any company which proposes to take over a business will be interested in producing little parcels of shares. Where a business is worth below, say, £25,000 the takeover is to be for cash. It is the firms that are taken over for about £250,000 which will get the advantage of the share exchange. The point is that the small man is affected.
If the "Co-op" takes over several small butchers' shops in towns and villages, shares will not be offered as there are no shares in this sense. The shops will be bought for cash and the seller will have to pay up to 30 per cent. capital gains tax. Lewis's, which has kiosks all over the country, may take over tobacconists, confectioners or newsagents and would not give shares because such parcels of shares would be too small. It would give cash and the seller who wanted to retire and live on an annuity would have to pay tax. C & A Modes is the kind of firm which has quoted shares but, nevertheless, in the process of taking over small individual businesses would not give shares because, again the parcels of shares would be too small, and so it would pay cash.
To come to the other end of the scale, where take-overs are made for exchanges of shares, I.C.I., proposing to take over Courtaulds, would exchange shares and the advantage in this respect would go to Courtaulds. This would be entirely to the advantage of Courtaulds, which would be able to live on the investment income from those shares unpenetrated by the Capital Gains Tax. Or Powell Duffryn, taking over a quarry, is the scale of operation where there would be a share exchange. The benefit is entirely in favour of the large firms which gets this postponed impact of the tax and allows the man who disposes of his business of retirement to live until the time of his death without suffering the imposition of the tax.
This is not only an inequitable and unjustified discrimination, but strikes at the very principle of what the Chancellor of the Exchequer has been trying to tell us in the Budget. This seems to be "To be who hath shall be given" and seems to discredit the whole basic approach of the Chancellor in justifying Capital Gains Tax on the basis of fairness among different categories of taxpayer and different types of citizen. This is entirely a 30 per cent. discriminating advantage in favour of the businessman who is big enough to receive shares at the moment of retirement and then to live on the investment income of those shares, unpenetrated by the Capital Gains Tax until the time of his death.
A simple Amendment would end the injustice and would extend the privilege


of exchanging business assets for shares to every member of the community who has a business to dispose of. To make it as palatable as possible to the Chancellor, I have proposed that the shares he should be allowed to exchange the assets into are precisely those gilt-edged securities which now seem to be in some jeopardy as a result of other measures which the right hon. Gentleman has introduced. The small business man who would otherwise have to dispose of his assets for cash because no one would give shares for them would be saved Capital Gains Tax until death, when the tax would accrue in exactly the same way as it would under the Schedule as it stands for those who exchange for shares, but it would be by allowing the exchange into a specified category of shares without paying cash at the moment of transition.

The Solicitor-General: The hon. Member for Barkston Ash (Mr. Alison) has addressed the Committee with his usual ingenuity. There is one point on which his mind should already have been set at rest. He referred to the position of small businessmen on the verge of retirement. My hon. and learned Friend the Financial Secretary said earlier that he was particularly studying the position of such persons and it was on that understanding that an Opposition Amendment was withdrawn.
What the paragraph as it stands provides is that when a business is exchanged for shares the Capital Gains Tax charge on disposal of the business is to be deferred until there is disposal of the shares so acquired by the previous owner of the business. In other words, this is a provision in favour of the taxpayer. The hon. Gentleman had a good deal to say about the paragraph, but not so much to say about his Amendment. I hope to be able to satisfy the Committee that the Amendment would involve both anomaly and injustice.
Its purpose is to provide that if a person disposes of his business otherwise than for shares in the company acquiring the business, that is to say, if he sells the business outright, there should be no Capital Gains Tax on the gains realised on the disposal of the business to the extent that the proceeds of the disposal are invested in Government securities or

National Savings Certificates. The special privilege is obtained only on that condition.
This is open to the strongest possible objection on principle. It can hardly be thought to be sufficient reason for exempting from the scope of a comprehensive tax gains which arise on disposal merely because the asset disposed of consists of a business, or merely because the consideration for the asset takes one particular form. If a privilege of this kind is to be granted, ought there not to be a similar exemption for people disposing of stocks and shares, or any other kind of asset, and then reinvesting the proceeds in Government securities?
The Amendment would create a wholly illogical distinction and one wonders whether the implied suggestion, that there is a need to support the gilt-edged market, justifies an exemption of this kind, especially when the securities to be taken into consideration on disposal are marketable. As the Amendment stands, there would not be the slightest impediment to a person disposing of a business and getting his gain tax free because he reinvested the money in Government securities, but selling them the week after and putting the money into some other form of investment.
I submit that this is an absurd proposal and I invite the Committee to reject it.

3.45 a.m.

Mr. Peter Walker: The Solicitor-General must be feeling tired. Certainly, he could not have listened to the cogent argument of my hon. Friend the Member for Barkston Ash (Mr. Alison). The argument propounded was perfectly clear. It is that if a person decides to give up his activities in conducting a business of which he is the proprietor and, in doing so, decides to sell it to one of the major companies, such as Great Universal Stores or Marks and Spencer, and, in place of his business, he retains shares in the major company, which relieves him of the activity of running a business and allows him to live on the income from the shares, by doing that the Government do not take away any tax at all until the final point of realisation at death or some other stage.
My hon. Friend has suggested that if it is fair for a person to sell his business to one of the large companies and have


the income without being taxed at that stage, then it is just as fair that someone who immediately puts his money back into Government securities and lives on his income in that way should be able to do so without there being deduction of 30 per cent.
That is a good, cogent and sound argument. Compared with the enthusiasm and energy of the Solicitor-General in propounding his argument on the previous Amendment, the way in which

he turned down the Amendment which was so ably moved from this side, dealing with something of great importance, is very discouraging to the Committee. I would urge my hon. and right hon. Friends to support that Amendment in the Division Lobby.

Question put, That those words be there inserted:—

The Committee divided: Ayes 165, Noes 177.

Division No. 157.]
AYES
[3.47 a.m.


Agnew, Commander Sir Peter
Gower, Raymond
Morrison, Charles (Devizes)


Alison, Michael (Barkston Ash)
Grant, Anthony
Mott-Radclyffe, Sir Charles


Allan, Robert (Paddington, S.)
Gresham Cooke, R.
Munro-Lucas-Tooth, Sir Hugh


Allason, James (Hemel Hempstead)
Grieve, Percy
Murton, Oscar


Amery, Rt. Hn. Julian
Griffiths, Peter (Smethwick)
Noble, Rt. Hn. Michael


Anstruther-Cray, Rt. Hn. Sir W.
Gurden, Harold
Nugent, Rt. Hn. Sir Richard


Atkins, Humphrey
Hall, John (Wycombe)
Osborn, John (Hallam)


Baker, W. H. K.
Hall-Davis, A. G. F.
Page, R. Graham (Crosby)


Batsford, Brian
Harrison, Brian (Maldon)
Pearson, Sir Frank (Clitheroe)


Beamish, Col. Sir Tufton
Harvey,Sir Arthur Vere (Macelesf'd)
Percival, Ian


Berry, Hn. Anthony
Harvey, John (Walthamstow, E.)
Peyton, John


Biffen, John
Hastings, Stephen
Pickthorn, Rt. Hn. Sir Kenneth


Biggs-Davison, John
Hawkins, Paul
Pitt, Dame Edith


Birch, Rt. Hn. Nigel
Heald, Rt. Hn. Sir Lionel
Powell, Rt. Hn. J. Enoch


Blaker, Peter
Heath, Rt. Hn. Edward
Price, David (Eastleigh)


Bossom, Hn. Clive
Higgins, Terence L.
Pym, Francis


Box, Donald
Hill, J. E. B. (S. Norfolk)
Quennell, Miss J. M.


Boyle, Rt. Hn. Sir Edward
Hirst, Geoffrey
Ramsden, Rt. Hn. James


Braine, Bernard
Hobson, Rt. Hn. Sir John
Rawlinson, Rt. Hn. Sir Peter


Brinton, Sir Tatton
Hogg, Rt. Hn. Quintin
Redmayne, Rt. Hn. Sir Martin


Brown, Sir Edward (Bath)
Hordern, Peter
Ridsdale, Julian


Bruce-Gardyne, J.
Hornby, Richard
Rodgers, Sir John (Sevenoaks)


Bryan, Paul
Hunt, John (Bromley)
Roots, William


Buxton, Ronald
Irvine, Bryant Godman (Rye)
Scott-Hopkins, James


Campbell, Gordon
Jenkin, Patrick (Woodford)
Sharples, Richard


Carlisle, Mark
Johnson Smith, G. (East Grinstead)
Sinclair, Sir George


Carr, Rt. Hn. Robert
Johnston, Russell (Inverness)
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Clark, William (Nottingham, S.)
Kaberry, sir Donald
Spearman, Sir Alexander


Cole, Norman
Kilfedder, James A.
Stainton, Keith


Cooke, Robert
Kimball, Marcus
Stodart, Anthony


Cooper-Key, Sir Neill
King, Evelyn (Dorset, S.)
Studholme, Sir Henry


Corfield, F. V.
Kirk, Peter
Taylor, Edward M. (G'gow.Cathcart)


Crosthwaite-Eyre, Col. Sir Oliver
Lambton, viscount
Taylor, Frank (Moss Side)


Curran, Charles
Lancaster, Col. C. G.
Teeling, Sir William


Dalkeith, Earl of
Langford-Holt, Sir John
Temple, John M.


Davies, Dr. Wyndham (Perry Barr)
Legge-Bourke, Sir Harry
Thomas, Sir Leslie (Canterbury)


d'Avigdor-Goldsmid, Sir Henry
Lewis, Kenneth (Rutland)
Thomas, Rt. Hn. Peter (Conway)


Dean, Paul
Litchfield, Capt. John
Thompson, Sir Richard (Croydon,S.)


Deedes, Rt. Hn. W. F.
Longbottom, Charles
Tilney, John (Wavertree)


Digby, Simon Wingfield
Longden, Gilbert
Turton, Rt. Hn. R. H.


Elliot, Capt. Walter (Carshalton)
Loveys, Walter H.
Tweedsmuir, Lady


Eyre, Reginald
Lubbock, Eric
van Straubenzee, W. R.


Farr, John
Lucas, Sir Jocelyn
Walker, Peter (Worcester)


Fell, Anthony
MacArthur, Ian
Ward, Dame Irene


Fletcher-Cooke, Charles (Darwen)
Mackie, George Y. (C'ness &amp; S'land)
Weatherill, Bernard


Fletcher-Cooke, Sir John (S'pton)
Maclean, Sir Fitzroy
Whitelaw, William


Foster, Sir John
Maginnls, John E.
Williams, Sir Rolf Dudley (Exeter)


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Maude, Angus
Wilson, Geoffrey (Truro)


Fraser, Ian (Plymouth, Sutton)
Mawby, Ray
Wise, A. R.


Gammans, Lady
Maxwell-Hyslop, R. J.
Wolrige-Gordon, Patrick


Gibson-Watt, David
Meyer, Sir Anthony
Wood, Rt. Hn. Richard


Gilmour, Ian (Norfolk, Central)
Mills, Stratton (Belfast, N.)
Wylle, N. R.


Gilmour, Sir John (East Fife)
Miscampbell, Norman
Younger, Hn. George


Glover, Sir Douglas
Mitchell, David



Goodhart, Philip
Monro, Hector
TELLERS FOR THE AYES:


Goodhew, Victor
More, Jasper
Mr. McLaren and




Mr. R. W. Elliott.




NOES


Albu, Austen
Armstrong, Ernest
Baxter, William


Alldritt, Walter
Atkinson, Norman
Beaney, Alan


Allen, Schcolefield (Crewe)
Bagier, Gordon A. T.
Bence, Cyril




Benn, Rt. Hn. Anthony Wedgwood
Harper, Joseph
O'Malley, Brian


Bennett, J. (Glasgow, Bridgeton)
Harrison, Walter (Wakefield)
Oram, Albert E, (E. Ham, S.)


Binns, John
Hazell, Bert
Orme, Stanley


Bishop, E. S.
Herbison, Rt. Hn. Margaret
Page, Derek (King's Lynn)


Blackburn, F.
Hobden, Dennis (Brighton, K'town.)
Paget, R. T.


Blenkinsop, Arthur
Horner, John
Palmer, Arthur


Boardman, H.
Houghton, Rt. Hn. Douglas
Pargiter, G. A.


Boyden, James
Howarth, Robert L. (Bolton, E.)
Park, Trevor (Derbyshire, S.E.)


Braddock, Mrs. E. M.
Hughes, Emrys (S. Ayrshire)
Parker, John


Bradley, Tom
Hunter, Adam (Dunfermline)
Parkin, B. T.


Brown, Rt. Hn. George (Belper)
Hynd, H. (Accrington)
Pearson, Arthur (Pontypridd)


Brown, Hugh D. (Glasgow, Provan)
Irving, Sydney (Dartford)
Peart, Rt. Hn. Fred


Buchanan, Richard
Jackson, Colin
Perry, Ernest G.


Butler, Herbert (Hackney, C.)
Jay, Rt. Hn. Douglas
Popplewell, Ernest


Butler, Mrs. Joyce (Wood Green)
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Prentice, R. E.


Callaghan, Rt. Hn. James
Jenkins, Hugh (Putney)
Probert, Arthur


Carmichael, Neil
Jenkins, Rt. Hn. Roy (Stechford)
Pursey, Cmdr. Harry


Carter-Jones, Lewis
Johnson, Carol (Lewisham, S.)
Rees, Merlyn


Castle, Rt. Hn. Barbara
Johnson,James(K'ston-on-Hull,W.)
Rhodes, Geoffrey


Coleman, Donald
Jones, J. Idwal (Wrexham)
Robertson, John (Paisley)


Conlan, Bernard
Jones, T. W. (Merioneth)
Robinson, Rt. Hn.K.(St. Pancras,N.)


Cousins, Rt. Hn. Frank
Kenyon, Clifford
Rodgers, William (Stockton)


Craddock, George (Bradford, S.)
Kerr, Dr. David (W'worth, Central)
Row, Rt. Hn. William


Cullen, Mrs. Alice
Lawson, George
Sheldon, Robert


Dalyell, Tam
Ledger, Ron
Shore, Peter (Stepney)


Davies, G. Elfed (Rhondda, E.)
Lever, Harold (Cheetham)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Davies, Ifor (Cower)
Lewis, Ron (Carlisle)
Silkin, John (Deptford)


Davies, S. O. (Merthyr)
Lomas, Kenneth
Skeffington, Arthur


Dempsey, James
Loughlin, Charles
Slater, Mrs. Harriet (Stoke, N.)


Dodds, Norman
Mabon, Dr. J, Dickson
Small, William


Doig, Peter
McCann, J.
Solomons, Henry


Donnelly, Desmond
MacColl, James
Stewart, Rt. Hn. Michael


Driberg, Tom
MacDermot, Niall
Summerskill, Hn. Dr. Shirley


Duffy, Dr. A. E. P.
McGuire, Michael
Swain, Thomas


Dunn, James A.
Mclnnes, James
Thomas, Iorwerth, (Rhondda, W.)


Dunnett, Jack
McKay, Mrs. Margaret
Thomson, George (Dundee, E.)


English, Michael
Mackenzie, Gregor (Rutherglen)
Tomney, Frank


Ennals, David
Mackie, John (Enfield, E.)
Urwin, T. W.


Evans, Albert (Islington, S.w.)
MacMillan, Malcolm
Walden, Brian (All Saints)


Fernyhough, E.
MacPherson, Malcolm
Wallace, George


Fitch, Alan (Wigan)
Mahon, Peter (Preston, S.)
Watkins, Tudor


Fletcher, Sir Eric (Islington, E.)
Mahon, Simon (Bootle)
Wells, William (Walsall, N.)


Fletcher, Raymond (Ilkeston)
Manuel, Archie
Whitlock, William


Floud, Bernard
Mapp, Charles
Wilkins, W. A.


Foot, Sir Dingle (Ipswich)
Mason, Roy
Willey, Rt. Hn. Frederick


Foot, Michael (Ebbw Vale)
Millan, Bruce
Williams, Alan (Swansea, W.)


Ford, Ben
Miller, Dr. M. S.
Williams, Mrs. Shirley (Hitchin)


Fraser, Rt. Hn. Tom (Hamilton)
Milne, Edward (Blyth)
Williams, W. T. (Warrington)


Freeson, Reginald
Morris, Alfred (Wythenshawe)
Willis, George (Edinburgh, E.)


Garrett, W. E.
Morris, Charles (Openshaw)
Wilson, William (Coventry, S.)


Garrow, A.
Mulley,Rt.Hn.Frederick(SheffieldPk)
Winterbottom, R. E.


Ginsburg, David
Murray, Albert
Woof, Robert


Gourlay, Harry
Neal, Harold
Wyatt, Woodrow


Greenwood, Rt. Hn. Anthony
Newens, Stan
Zilliacus, K.


Gregory, Arnold
Noel-Baker, Francis (Swindon)



Griffiths, Will (M'chester, Exchange)
Norwood, Christopher
TELLERS FOR THE NOES:


Hamilton, James (Bothwell)
Oakes, Gordon
Mr. Grey and Mr. Howie.

Mr. Peter Walker: I beg to move Amendment No. 399, in page 150, line 13, to leave out from the beginning to "neither" in line 17.
This is something of an exploratory Amendment to find out the reasons why the Government are still continuing to include capital redemption policies in the Capital Gains Tax. I would have thought that the agreement on the part of the Government to accept the various Amendments on Clause 27 would automatically have meant they would have wanted to exclude capital redemption policies from the Capital Gains Tax because these capital gains are already taxed within the life assurance company.
The money invested from the premium will have been subject to capital gains

within the life assurance company. Most of the capital gain that takes place will be as a result of income from the premium and investment will have been taxed as a form of income to the life assurance companies.

The Solicitor-General: In our view there is a very clear distinction between an ordinary life policy and the kind of policy with which we are now concerned. We are dealing with a simple form of capital investment. Whatever may be said about insurance generally we submit it is right that capital redemption policies should be subject to Capital Gains Tax because a capital redemption policy is not a life assurance policy. It is simply a form of contract under which in return for one or more premiums the holder


receives at a later date a larger total amount, in one sum or by instalments.
The increment is in substance capitalised interest. We submit this falls into a wholly different category from a life assurance policy and, therefore, we cannot accept the Amendment.

Mr. Peter Walker: Whilst not accepting that explanation in the sense that the capitalised income has been subject to taxation but a part of the income will be from capital appreciation of the life assurance companies investments, I think that there are very strong technical arguments why it is wrong that the Government should persist with them. As we can return to this on the Report stage of the Bill, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendments made: In page 150, line 13, leave out "insurer" and insert "insured".

Amendment No. 392, in line 21, leave out sub-paragraph (2) and insert:
(2) Notwithstanding sub-paragraph (1) above, sums received under a policy of insurance of the risk of any kind of damage to. or the loss or depreciation of, assets are for the purposes of this Part of this Act, and in particular for the purposes of section 21(3) of this Act, sums derived from the assets.

Amendment No. 188, in line 22, at end insert:
(3) In this paragraph "policy of insurance" does not include a policy of assurance on human life.

Amendment No. 189, in page 151, line 5, at end insert:
(a) any allowance, annuity or capital sum payable out of any superannuation fund, or under any superannuation scheme, established solely or mainly for persons employed in a profession, trade, undertaking or employment, and their dependants.

Amendment No. 190, in line 6, after "granted", insert:
otherwise than under a contract for a deferred annuity".—[The Solicitor-General.]

4.0 a.m.

The Deputy-Chairman: The next Amendment selected is No. 574, and with it we can discuss Amendment No. 575, in page 155, line 15, leave out sub-paragraph (2).

Mr. Peter Walker: I beg to move Amendment No. 574, in page 155, line 3, to leave out sub-paragraph (1).
I can only look on this sub-paragraph as a bad joke. Its effect is that if someone receives a gift then, as those who have been present during this Committee stage so far will recognise, there is a distinct tax on generosity; if one gives a chattel worth more than £1,000 or various other gifts that are not chattels, at the point of giving the gift the donor has to pay Capital Gains Tax.
We on this side consider that to be bad enough, but for the Government to introduce a provision that says that if the Inland Revenue is unsuccessful in getting Capital Gains Tax from the donor within 12 months it can put an assessment on the person who has been given the gift is a quite remarkable piece of Socialist legislation. It creates a position in which someone can accept a gift and then, without having any knowledge of what capital gain has taken place on the gift, some 12 months later can receive an assessment from the Inland Revenue because it has failed to collect tax from the correct source is against the whole spirit of our taxation system.
That provision is followed by subparagraph (2), which says—such is the generosity of our Socialist rulers—that if the Inland Revenue calls on the person who has received the gift to pay the donor's tax, that person has the right to take the donor to court and try to recover the amount from him. This is a remarkable piece of impudence. That because the Inland Revenue fails to collect taxation, the receiver of the gift should be put into court against the person who has given the gift, in order to recover the tax assessed on him. is something which I am sure the Committee will find completely unacceptable. I hope that on further consideration the Solicitor-General, who so far has not been in a very generous, genial or kind-hearted mood, will, in the interests of the subject, immediately accept the Amendment.

The Solicitor-General: The objections to the Amendment must. I think, have been apparent to the hon. Gentleman himself and must be clear to every member of the Committee. If we were to acept it we should open a very wide loophole indeed, because it would be open to any person who wished to evade the tax to dispose of his chargeable assets among his friends and relatives, leaving


the tax on any gains on the gifts unpaid and then just take steps to put himself outside the jurisdiction. All he would have to do would be to go abroad.
If the Amendment were passed, it would be quite impossible for the Revenue to collect the tax. In other words, where one had an unscrupulous donor who wished to cheat the Revenue, the Amendment would provide him with a very easy means of doing so. In these circumstances, it is not unreasonable that after a lapse of time, if it is proved impossible to collect the tax from the donor for the sort of reason that I have suggested, it should be possible to look to the donee who has had the benefit of the gift.
This is not without precedent in our law. In Estate Duty law, which, after all, provides a perfectly respectable precedent which we have had for many years, it is the donee in general who pays the estate duty on a gift inter vivos which turns out to have been made within five years of the death of the donor and thus to be liable to Estate Duty. Therefore, one can in those circumstances look to the donee. There is nothing wrong in principle about doing so where it is the only way of collecting the tax. I do not really think that the Amendment can be seriously intended, and I certainly invite the Committee to reject it.

Sir D. Glover: I have very rarely heard in the House of Commons such utter nonsense as has been said by the Solicitor-General. I thought that my hon. Friend the Member for Worcester (Mr. Peter Walker) made a very cogent speech. [HON. MEMBERS: "Call Cross-bencher!"] If that is all that you can think of at four o'clock in the morning you are wasting the time of your electors who sent you here.

The Deputy-Chairman (Sir Samuel Storey): Order. The hon. Gentleman must address his remarks to the Chair.

Sir D. Glover: The Solicitor-General thinks that there is at our ports—Dover, Heathrow, Gatwick, Southend, and so on—a queue of people waiting to emigrate after having given their grandsons, nephews or nieces a gift at Christmas. Is not the hon. and learned

Gentleman appealing only to the most crassly stupid class consciousness of all his colleagues?
What is behind the Clause? The hon. and learned Gentleman knows that it is really not what he is trying to make out. It is nothing else but an attempt to carry with him the Left wing of his party. Does he really think that all the people who give gifts to their nephews, nieces, aunts and uncles will emigrate the day after they have given them? This is what he is saying in the Clause—that once they have done it they will opt out of the jurisdiction of the country, and, therefore, the people they have given the money to will have to pay the tax.
This really is a most stupid thing; the most stupid thing we have been told throughout the whole of our discussions so far on the Bill. What the hon. and learned Gentleman is saying is that the whole of the British public, with the exception of himself and his colleagues, is dishonest that anyone who makes a gift to one of his relatives will immediately go abroad. That is what he is saying, that all the people who do this thing will promptly opt out of their obligations, and the nephew, the niece, or the cousin who has had the gift will have to pay this tax.
Could any Government really be so Scroogy as to believe that? Does he really think that he would like it to go out of this Committee that the Labour Party believes that somebody who receives a gift, and something then happens to the person who made the gift so that that person does not pay the tax, should be hounded by the Inland Revenue?
Is that what the Government want to be drawn as a picture of the Labour Party—the party which is always talking about fair shares for all, and equality? Is that the party which is now enunciating the policy that because somebody who gives a gift and who is not able to be clobbered by the Inland Revenue, the recipient of that gift must be hounded in this way? If that is really the philosophy of right hon. and hon. Members opposite, then no wonder that they are so very unpopular in the country.

Sir John Foster: The unscrupulous man who wants to avoid


this tax and is going abroad need only change all his assets and take them with him, so there is not any need to bother about the donee. Has the Solicitor-General thought of that? It may be, now he has realised it, that he will have to put a watch on all the air and sea ports.
Then, what about the person who gives away all his assets and then commits suicide? That is a very serious risk.

Mr. Lubbock: If the donor did that, then he would not only be subject to Capital Gains Tax, but the Estate Duty as well.

Sir J. Foster: But there would be no assets in the donor's estate. I think it was Talleyrand, at the Congress of Vienna, who said, "The Russian Ambassador is dead. I wonder what could have been his motive." The Government has provided a motive for the man who dies like that because he has got rid of all his assets. This really is absurd. The unscrupulous man who goes abroad can do much better than giving all his assets to a donee.

Sir A. V. Harvey: The learned Solicitor-General has put up no case at all. He must be very tired indeed if he can think of nothing better to offer the Committee than the belief that the donor would give away all his money and then beat it out of the country. It is a very curious argument for at least one reason. What will he live on when he gets out of the country with no money? That is

the most tired argument I have heard. We have listened to these arguments hour after hour on a badly conceived and badly presented Bill.

4.15 p.m.

Mr. Peter Mahon: If a person who had amassed a fortune in this country went overseas and had to start working for a living, it would be a tremendous shame.

Sir A. V. Harvey: I do not wish to follow that point. I have not seen the hon. Member doing much work on the Finance Bill.
The Solicitor-General has given nothing away. The Government have gone for the small trader and have beaten hell out of everyone except those whom they ought to catch. The Solicitor-General should think about this matter again.

Mr. Heath: When I heard the Solicitor-General's reply I asked myself, "The Solicitor-General must be alive. What can his motive be?".
There is only one word to describe these two sub-paragraphs—monstrous. There is only one way in which to describe the Solicitor-General's comments—shocking. There is only one action to take—to divide immediately.

Question put, That the words proposed to be left out stand part of the Schedule:—

The Committee divided: Ayes 174, Noes 161.

Division No. 158.]
AYES
[4.17 a.m.


Albu, Austen
Coleman, Donald
Fraser, Rt. Hn. Tom (Hamilton)


Alldritt, Walter
Conlan, Bernard
Freeson, Reginald


Allen, Scholefield (Crewe)
Cousins, Rt. Hn. Frank
Garrett, W. E.


Armstrong, Ernest
Craddock, George (Bradford, S.)
Garrow, A.


Atkinson, Norman
Cullen, Mrs. Alice
Ginsburg, David


Bagier, Gordon A. T.
Dalyell, Tam
Gourlay, Harry


Baxter, William
Davies, G. Eifed (Rhondda, E.)
Greenwood, Rt. Hn. Anthony


Beaney, Alan
Davies, Ifor (Gower)
Gregory, Arnold


Bence, Cyril
Davies, S. O. (Merthyr)
Griffiths, Will (M'Chester, Exchange)


Benn, Rt. Hn. Anthony Wedgwood
Dempsey, James
Hamilton, James (Bothwell)


Bennett, J. (Glasgow, Bridgeton)
Dodds, Norman
Harper, Joseph


Binns, John
Doig, Peter
Harrison, Walter (Wakefield)


Bishop, E. S.
Donnelly, Desmond
Hazell, Bert


Blackburn, F.
Driberg, Tom
Herbison, Rt. Hn. Margaret


Blenkinsop, Arthur
Duffy, Dr. A. E. P.
Hobden, Dennis (Brighton, K'town)


Boardman, H.
Dunn, James A.
Horner, John


Boyden, James
Dunnett, Jack
Houghton, Rt. Hn. Douglas


Braddock, Mrs. E. M.
English, Michael
Howarth, Robert L. (Bolton, E.)


Bradley, Tom
Ennals, David
Howie, W.


Brown, Rt. Hn. George (Belper)
Evans, Albert (Islington, S.W.)
Hughes, Emrys (S. Ayrshire)


Brown, Hugh D. (Glasgow, Provan)
Fernyhough, E.
Hunter, Adam (Dunfermline)


Buchanan, Richard
Fletcher, Sir Eric (Islington, E.)
Hynd, H. (Accrington)


Butler, Herbert (Hackney, C.)
Fletcher, Raymond (Ilkeston)
Irving, Sydney (Dartford)


Butler, Mrs. Joyce (Wood Green)
Floud, Bernard
Jackson, Colin


Callaghan, Rt. Hn. James
Foot, Sir Dingle (Ipswich)
Jeger,Mrs Lena(H'b'n&amp;St.P'cras,S.)


Carmichael, Neil
Foot, Michael (Ebbw Vale)
Jenkins, Hugh (Putney)


Carter-Jones, Lewis
Ford, Ben
Jenkins, Rt Hn. Roy (Stechford)




Johnson, Carol (Lewisham, S.)
Mulley,Rt.Hn.Frederick(SheffieldPk)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Johnson, James(K'ston-on-Hull, W.)
Murray, Albert
Silkin, John (Deptford)


Jones, J. Idwal (Wrexham)
Neal, Harold
Skeffington, Arthur


Jones, T. W. (Merioneth)
Newens, Stan
Slater, Mrs. Harriet (Stoke, N.)


Kenyon, Clifford
Noel-Baker, Francis (Swindon)
Small, William


Kerr, Dr. David (W'worth, Central)
Norwood, Christopher
Solomons Henry


Ledger, Ron
Oakes, Gordon
Stewart, Rt. Hn. Michael


Lever, Harold (Cheetham)
O'Malley, Brian
Summerskill, Hn. Dr. Shirley


Lewis, Ron (Carlisle)
Oram, Albert E. (E. Ham, S.)
Swain, Thomas


Lomas, Kenneth
Orme, Stanley
Thomas, Iorwerth (Rhondda, W.)


Loughlin, Charles
Page, Derek (King's Lynn)
Thomson, George (Dundee, E.)


Mabon, Dr. J. Dickson
Paget, R. T.
Tomney, Frank


McCann, J.
Palmer, Arthur
Urwin, T. W.


MacColl, James
Pargiter, G. A.
Walden, Brian (All Saints)


MacDermot, Niall
Park, Trevor (Derbyshire, S.E.)
Wallace, George


McGuire, Michael
Parker, John
Watkins, Tudor


Mclnnes, James
Parkin, B. T.
Wells, William (Walsall, N.)


McKay, Mrs. Margaret
Pearson, Arthur (Pontypridd)
Whitlock, William


Mackenzie, Gregor (Ruthergien)
Peart, Rt. Hn. Fred
Wilkins, W. A.


Mackie, John (Enfield, E.)
Perry, Ernest G.
Willey, Rt. Hn. Frederick


MacMillan, Malcolm
Popplewell, Ernest
Williams, Alan (Swansea, W.)


MacPherson, Malcolm
Prentice, R. E.
Williams, Mrs. Shirley (Hitchin)


Mahon, Peter (Preston, S.)
Probert, Arthur
Williams, W. T. (Warrington)


Mahon, Simon (Bootle)
Pursey, Cmdr. Harry
Willis, George (Edinburgh, E.)


Manuel, Archie
Rees, Merlyn
Wilson, William (Coventry, S.)


Mapp, Charles
Rhodes, Geoffrey
Winterbottom, R. E.


Mason, Roy
Robertson, John (Paisley)
Woof, Robert


Millan, Bruce
Robinson, Rt.Hn.K.(St. Pancras,N.)
Wyatt, Woodrow


Miller, Dr. M. S.
Rodgers, William (Stockton)
Zilliacus, K.


Milne, Edward (Blyth)
Ross, Rt. Hn. William



Morris, Alfred (Wythenshawe)
Sheldon, Robert
TELLERS FOR THE AYES:


Morris, Charles (Openshaw)
Shore, Peter (Stepney)
Mr. Fitch and Mr. Grey.




NOES


Agnew, Commander Sir Peter
Gibson-Watt, David
Maclean, Sir Fitzroy


Alison, Michael (Barkston Ash)
Gilmour, Ian (Norfolk, Central)
Maginnis, John E.


Allan, Robert (Paddington, S.)
Gilmour, Sir John (East Fife)
Maude, Angus


Allason, James (Hemel Hempstead)
Glover, Sir Douglas
Mawby, Ray


Amery, Rt. Hn. Julian
Goodhart, Philip
Maxwell-Hyslop, R. J.


Anstruther-Gray, Rt. Hn. Sir W.
Goodhew, Victor
Meyer, Sir Anthony


Atkins, Humphrey
Gower, Raymond
Mills, Stratton (Belfast, N.)


Baker, W. H. K.
Grant, Anthony
Miscampbell, Norman


Batsford, Brian
Grieve, Percy
Mitchell, David


Beamish, Col. Sir Tufton
Griffiths, Peter (Smethwick)
Monro, Hector


Berry, Hn. Anthony
Gurden, Harold
Morrison, Charles (Devizes)


Biffen, John
Hall, John (Wycombe)
Mott-Radclyffe, Sir Charles


Biggs-Davison, John
Hall-Davis, A. G. F.
Munro-Lucas-Tooth, Sir Hugh


Blaker, Peter
Harrison, Brian (Maldon)
Murton, Oscar


Bossom, Hn. Clive
Harvey, Sir Arthur Vere (Macclesf'd)
Noble, Rt. Hn. Michael


Box, Donald
Harvey, John (Walthamstow, E.)
Nugent, Rt. Hn. Sir Richard


Boyle, Rt. Hn. Sir Edward
Hastings, Stephen
Osborn, John (Hallam)


Braine, Bernard
Hawkins, Paul
Page, R. Graham (Crosby)


Brinton, Sir Tatton
Heald, Rt. Hn. Sir Lionel
Pearson, Sir Frank (Clitheroe)


Brown, Sir Edward (Bath)
Heath, Rt. Hn. Edward
Percival, Ian


Bruce-Gardyne, J.
Higgins, Terence L.
Peyton, John


Bryan, Paul
Hill, J. E. B. (S. Norfolk)
Pickthorn, Rt. Hn. Sir Kenneth


Buxton, Ronald
Hirst, Geoffrey
Pitt, Dame Edith


Campbell, Gordon
Hobson, Rt. Hn. Sir John
Powell, Rt. Hn. J. Enoch


Carlisle, Mark
Hogg, Rt. Hn. Quintin
Price, David (Eastleigh)


Carr, Rt. Hn. Robert
Hordern, Peter
Pym, Francis


Clark, William (Nottingham, S.)
Hornby, Richard
Quennell, Miss J. M.


Cole, Norman
Hunt, John (Bromley)
Ramsden, Rt. Hn. James


Cooke, Robert
Irvine, Bryant Godman (Rye)
Rawlinson, Rt. Hn. Sir Peter


Cooper-Key, Sir Neill
Jenkin, Patrick (Woodford)
Redmayne, Rt. Hn. Sir Martin


Corfield, F. V.
Johnson Smith, G. (East Grinstead)
Ridsdale, Julian


Crosthwaite-Eyre, Col. Sir Oliver
Johnston, Russell (Inverness)
Roots, William


Curran, Charles
Kaberry, Sir Donald
Scott-Hopkins, James


Dalkeith, Earl of
Kilfedder, James A.
Sharples, Richard


Davies, Dr. Wyndham (Perry Barr)
Kimball, Marcus
Sinclair, Sir George


d'Avigdor-Goldsmid, Sir Henry
King, Evelyn (Dorset, S.)
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Dean, Paul
Kirk, Peter
Spearman, Sir Alexander


Deedes, Rt. Hn. W. F.
Lambton, Viscount
Stainton, Keith


Digby, Simon Wingfield
Lancaster, Col. C. G.
Stodart, Anthony


Elliot, Capt. Walter (Carshalton)
Langford-Holt, Sir John
Studholme, Sir Henry


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Legge-Bourke, Sir Harry
Taylor, Edward M.(G'gow,Cathcart)


Eyre, Reginald
Lewis, Kenneth (Rutland)
Teeling, Sir William


Farr, John
Litchfield, Capt. John
Temple, John M.


Fell, Anthony
Longbottom, Charles
Thomas, Sir Leslie (Canterbury)


Fletcher-Cooke, Charles (Darwen)
Longden, Gilbert
Thomas, Rt. Hn. Peter (Conway)


Fletcher-Cooke, Sir John (S'pton)
Loveys, Walter H.
Thompson, Sir Richard (Croydon.S.)


Foster, Sir John
Lubbock, Eric
Tilney, John (Wavertree)


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Lucas, Sir Jocelyn
Turton, Rt. Hon. R. H.


Fraser, Ian (Plymouth, Button)
MacArthur, Ian
Tweedsmuir, Lady


Gammans, Lady
Mackie, George Y. (C'ness &amp; S'land)
van Straubenzee, W. R.







Walker, Peter (Worcester)
Wilson, Geoffrey (Truro)
Younger, Hn. George


Ward, Dame Irene
Wise, A. R.



Weatherill, Bernard
Wolrige-Gordon, Patrick
TELLERS FOR THE NOES:


Whitelaw, William
Wood, Rt. Hn. Richard
Mr. McLaren and Mr. More.


Williams, Sir Rolf Dudley (Exeter)
Wylie, N. R.

Further Amendment made: In page 155, line 13, after "amount", insert "of".—[The Solicitor-General.]

Schedule, as amended, agreed to.

Orders of the Day — Schedule 8.—(CAPITAL GAINS: LEASES.)

Amendments made: In page 160, line 32, leave out "premium" and insert "lease".

In page 162, line 23, leave out "and 4" and insert "4 and 8".—[The Solicitor-General.]

Schedule, as amended, agreed to.

Orders of the Day — Schedule 9.—(CAPITAL GAINS: ADMINISTRATION.)

Mr. MacDermot: I beg to move Amendment No. 447, in page 164, line 9, at the end to insert:
(d) where the market value of an asset on a particular date, or an apportionment or any other matter, may affect the liability to capital gains tax of two or more persons, enabling any such person to have the matter determined by the tribunal having jurisdiction to determine that matter if arising on an appeal against art assessment, and prescribing a procedure by which the matter is not determined differently on different occasions".
The purpose of this Amendment is to ensure that the Inland Revenue has power to make regulations so as to see that all determinations of market value of an asset at a particular date are made, in effect, by the same tribunal.

Amendment agreed to.

Further Amendments made: In page 164, line 12, after "this", "insert" or any other".

In line 14, leave out from "claim" to end of line 15 and insert:
or to disclose to a person whose liability to tax may be affected by the determination of the market value of an asset on a particular date, or an apportionment or any other matter, any decision on the matter made by an inspector or other officer of the Board".

In page 165, line 20, after "7", insert "or section 9(6)".

In page 166, line 31, after "issued", "insert" "allotted".

In line 35, leave out from "jobber" to "may" in line 39.

In line 44, at end insert:
and the amount or value of the consideration".

In page 167, line 4, at end insert:
and the amount or value of the consideration".

In line 8, after "return", insert "giving particulars".

In page 168, line 23, leave out "by" and insert "all".

In line 28, after "on", insert "or in the name of".—[Mr. MacDermot.]

4.30 a.m.

Mr. MacDermot: I beg to move Amendment No. 180, in page 168, line 38, at the end to insert:
(3) Chargeable gains which accrue to an individual on the disposal of assets deemed to be made by him on his death shall be regarded for the purposes of this Part of this Act as accruing to an individual notwithstanding that capital gains tax in respect of the gains is chargeable and assessable on his personal representatives.
The Amendment proposes to insert a new sub-paragraph (3) and its purpose is to make clear that the alternative basis of charge is to apply to gains accruing on the death of an individual even though in form these gains are the gains of his personal representatives and are assessed on them.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 181, in page 168, line 40, to leave out "for relief from income tax" and to insert:
under the Income Tax Acts".
This is a drafting Amendment to remove some rather restrictive words which are not really necessary.

Amendment agreed to.

Question proposed, That this Schedule, as amended, be the Ninth Schedule to the Bill.

Sir C. Mott-Radclyffe: In spite of the all-night sitting there are two paragraphs in the Schedule to which we must draw attention. They are causing grave disquiet to a large number of people, and we must ask for some explanation of


them and an assurance from the hon. and learned Gentleman before we part with the Schedule.
The first paragraph is paragraph 6, which requires an auctioneer or dealer to give particulars of any transactions of over £1,000. This requirement will have a number of repercussions. It is quite a new requirement. In the first place, it imposes an almost intolerable clerical burden upon the auctioneers and dealers in question. Even in Sotheby's and Christie's more than 2,000 lots are sold every year at a value of more than £1,000—and they are only two of the auctioneers and dealers in London. There are many other auctioneers throughout the country. The clerical task of making a return of all transactions of more than £1,000 is stupendous.
Secondly, this at once destroys the confidential relationship between an auctioneer or dealer and his client. I ask the hon. and learned Gentleman to explain how an auctioneer can, beyond doubt, discover the identity of any given buyer. It may be that the buyer wishes to remain anonymous, or that the buyer pays for the purchase in notes. At a sale not long ago a number of French dealers purchased furniture in London, anonymously in the names of Napoleons' marshals. It would be a paradox if, at some future date, we were to read in the Evening Standard that various works of art had been bought anonymously in the names of former Socialist politicians—£20,000 for a Cezanne bought anonymously in the name of Keir Hardie, a set of Georgian silver bought anonymously in the name of Mr. George Lansbury, or a copy of the well-known Victorian painting "Sentence of Death" by Collyer, bought in the name of Sir Stafford Cripps—although the latter might escape tax, because I do not think that it would go for £1,000. We must ask the hon. and learned Gentleman how this extraordinary provision will be translated into practice.
The next paragraph—and much the more serious of the two—is paragraph 13. This gives the most extraordinary powers of entry, which have never been given before. It empowers inspectors from the Board of Inland Revenue, and any other

officer whom the inspectors may wish to take with them, to enter individuals' houses after due notice has been given to discover the value of any work of art or contents of the house which they think is likely to be sold in the near future.
Where are these inspectors to be found? How are they to be recruited? Does the hon. and learned Gentleman think that inspectors from the Board will be able to find experts from the Victoria and Albert Museum, or the National Gallery, or the National Portrait Gallery, to accompany them on weekend trips to houses in Northumberland, Cornwall, Lancashire, or anywhere else, to examine their contents and decide whether something there might be sold in the near future?
If so, what will happen? It may be that the expert accompanying the Board's inspector knows a lot about tapestry and nothing about books, or a lot about pictures and nothing about carpets. What happens then? Are they to be allowed to take an article out of a house and transport it to London, to be examined by another expert who will place a hypothetical value on it according to what he judges it would have been worth on Budget day, just in case a year from then it might be sold at some auction?
How much notice is to be given before these officers enter somebody's house? What reasonable objection will the owner be allowed to make? This will be a very happy hunting ground for the burglars. All they will have to do is dress up as an official after a couple of bogus telephone calls, take someone else with them and they can then do a splendid "recce" in force to discover what is where and how to get it—[Laughter.] This is a very serious matter. Hitherto. the right of entry into someone's premises has been most carefully restricted and supervised by the police, and even they cannot enter a house without the permission of the owner without a warrant.

Sir L. Heald: Can my hon. Friend explain to us how it is that someone else can be taken, because all the Schedule says is
…an inspector or other officer"?
It does not provide, so far as I can see, for his taking anyone else with him. He


may be either an inspector or another officer of the Board—[An HON. MEMBER: "Whose side is he on?"] An independent valuer is not included.

Sir C. Mott-Radclyffe: I would not for a second disagree with my right hon. and learned Friend the Member for Chertsey (Sir L. Heald). If his interpretation is right—as I accept that it is—it makes the position much worse than I thought it was. I think that we require an explanation from the Government of exactly how these powers are to be given and what safeguards there will be before we can allow the Schedule to pass.

Mr. Robert Cooke: I do not want to speak at great length at this hour on the Schedule because my hon. Friend the Member for Windsor (Sir C. MottRadclyffe) has done more than justice to many of our fears on this side of the Committee. But there are 20 to 30 hon. Members on this side ready to speak who feel just as deeply and are just as worried about the provisions of the Schedule which my hon. Friend has outlined.
Although the Schedule has been hacked about by the Government, they have not gone anything like far enough, in my view. There are many unanswered questions on the matters which my hon. Friend was speaking about. The question of auctioneers and dealers becoming the unwilling agents of the Inland Revenue is raised by paragraph 6 subsection (6). Is there any parallel situation, or is this a provision which appears for the first time in this Bill? Have these people ever been put in this position before? I think that we are entitled to know that before we vote on the Schedule.
On my hon. Friend's second point about the inspectors or officers, I must say that I was in agreement with my right hon. and learned Friend the Member for Chertsey (Sir L. Heald). Paragraph 13 says that the Board shall authorise an inspector or other officer. It would appear that an inspector or another officer would be allowed to make these inspections. Am I right in assuming that these gentlemen, whoever they are, will be authorised to look into people's homes, not just to value the object if there has been a sale or is to be a sale, but to see whether it is still there? I should like

an answer on that. Are these people to be authorised by the Board—having decided when it is reasonable, because it says that the Board is to decide—to snoop, to inspect, to see whether the works of art are still there?
How is one person to deal with the matter? How can one expert hope to deal with the wide variety of objects which may be in the same collection? Is the officer entitled to remove the object for inspection and identification, and can the same person necessarily do the identification and valuation? All these are burning questions to which we must have answers before we can vote on the Schedule. There is a good deal more which I could have said about this. The Government have given no answers to practically all our questions, and now is their opportunity to do so. As we see it, this Schedule contains provisions which are alien to our way of life and which have never before been produced in an Act of Parliament.

4.45 a.m.

Mr. Cole: At this early hour of the morning this does not seem to be an important matter for some hon. Members, but many hon. Members on this side of the Committee think that it is very serious. It may well be the beginning of similar things which we are to see later. All I can say in its favour is that the Government have shown themselves determined to get this Capital Gains Tax by one means or another. As one of my hon. Friends said, they have used pure blooded Socialism to get it.
My hon. Friend the Member for Bristol, West (Mr. Robert Cooke) pointed out that this provision is entirely on the side of the Inland Revenue. There is no reference to "householder", which is far too dangerous a word to use and instead it is something like "possession of the property" as a synonym. The householder is to have no say as to the time that the inspector calls and he is not able to stop the inspector from entering. Indeed, anyone wilfully delaying the entry of the inspector is to be liable to a fine of £5. The only way to keep the inspectors out of one's castle, which was the Englishman's home only a few years ago, is not to have anything which is subject to Capital Gains Tax, and even then an inspector can still enter to make sure that


there is nothing which is subject to the tax. I prophesy that the inspectors will not like this any more than we do. A hierarchy of people will be brought in at the beginning, because, as my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) pointed out, only an inspector or other officer is to be allowed to enter, and if the householder has any sense he will see that no one else enters.
Are different officers to value different things, or will the man who values a valuable Chinese carpet also value Georgian silver? If so, he will soon become so expert that he will be able to get a much better job than he has with the Inland Revenue. If the inspector is to be an ordinary Income Tax inspector, he will know nothing about valuation. This provision should have been a non-starter not only on these grounds, but, more important, because it allows an incursion into the rights of the individual which he has successfully resisted until now. This proposal is quite new and this Schedule is being debated at nearly 5 o'clock in the morning. It is unfair to the Committee that we should be asked to decide this issue at this time and I will vote against it if only for that reason.

Mr. Ian Gilmour: My hon. Friends have drawn attention to paragraph 11 of the Schedule to which I will return later. I should like to draw the attention of the Committee, although I am sure that hon. Members are familiar with it, to paragraph 6(4) which says:
A member of the Stock Exchange in the United Kingdom, other than a jobber, … may be required to make a return giving particulars of any transactions effected by him in the course of his business in the period specified in the notice requiring the return giving particulars of the parties to the transactions and the number and the amount of the shares or securities dealt with in the respective transactions.
This is something quite new. This is a general snooping provision. It is not ordinary but vicarious snooping and it goes far further than ever before, far further than the 1962 Act.
That taken together with paragraph 11, raises two very serious issues. The first is the issue of the relationship between the taxpayer and the Inland Revenue, be-

cause tax gathering depends on the co-operation of the taxpayer and in this country that relationship has been good for about a thousand years. [Laughter.] Even before the Norman Conquest, funnily enough, this country had a far better tax-gathering system than any of its neighbours. This country has always been a tax gatherer's paradise because of this relationship, but it will be ended if the Government do not show good sense and restraint. The Stuarts found that out and this Government will do the same, because the Budget is so obsessed with the possibility of tax evasion and so obsessed with blocking up imaginary loopholes, that the Government are merely encouraging people to find real loopholes. They will encourage a frame of mind in which people will try all they can to do down the Revenue.
The second fundamental objection is that paragraph 11 and paragraph 6(4) are fundamentally at variance with the British tradition of law which is to deal with particular matters and particular persons and not with general matters and persons in general. But this provision is extremely wide and requires people to give information about the doings of others and there is nothing specific. The provision which I quoted relates to everybody.
The Committee may think that this matter was decided once and for all by all the Wilkes cases. If it does, it is wrong, because the Government are intent on aping George III, madness and all. In the great case of Entick and Carrington which finally decided the illegality of the general warrant, a thoroughly important case with which, I am sure, hon. Members are thoroughly familiar, it was laid down that the Executive should not wield its power purely arbitrarily. It found finally and crucially against the arbitrary power of the Executive. The general warrant was completely analogous to what the Schedule does in paragraphs 11 and 6.
I will read a short part of the judgment in that case. Lord Camden said
…because if this point should be determined in favour of the jurisdiction, the secret cabinets and bureaux of every subject in this kingdom will be thrown open to the search and inspection of a messenger, whenever the Secretary of State shall think fit to charge or even to suspect…


The Lord Chief Justice—and I am sure that the Financial Secretary is familiar with this case—thought that such a thing was absolutely out of the question, and every succeeding Government since that day has thought the same.
Later on in the judgment he said:
Lastly, it is urged as an argument of utility that such a search is a means of detecting offenders by discovering evidence … But our law has provided no paper search in these cases to help forward the conviction. Whether this proceedeth from the gentleness of the law towards criminals, or from a consideration that such a power could be more pernicious to the innocent than useful to the public, I will not say".
He made no bones about what he thought and he made it clear that he regarded such an idea as thoroughly pernicious.
In this Schedule the Government are going back on the whole tradition of English law since 1765. The Schedule is repugnant to the whole libertarian tradition of British law and the Government have produced nothing whatever to show why there should be a return to general inquisitorial powers. The Schedule should therefore be thrown out.

Mr. Lubbock: A number of interesting points have been made, but I cannot see anything fundamentally objectionable about the provisions of paragraphs 6 (4) or 6 (6) relating to the jobbers and the auctioneers. I think this is straightforward. The returns that are going to be required from these people are not wholly acceptable in our law. I think it possible that, if these powers conferred on the Government are exercised widely, this could be a tremendous nuisance for both jobbers and auctioneers and I should like to hear from the Government just what they have in mind. Are they going to require returns in the initial stages of all transactions of upwards of £1,000? Is this to be done on a sampling basis, or is this to be done just in the case where there is reason to suspect that tax evasion has taken place? If we knew the answer to those questions we might be better able to consider whether to pass this provision.
I agree with what has been said about paragraph 13. This is infinitely more important and requires very careful examination. The point was raised about the ability of the tax inspectors or officers of the Inland Revenue to judge what is

the value of a particular object, or what is the gross gain.
People's views differ about works of art and I cannot imagine the tax inspectors going to a person's house and saying what is the value of an El Greco or a Renoir. There are disputes between art experts themselves as to the value of particular pictures or statues. How then are these people to go into a house and take a look at a work of art suddenly and say that it is worth so and so? It absolutely defeats me. Why is this provision necessary at all? In nearly every case the Capital Gains Tax is going to be collected when the assets are disposed of. The only explanation is that this is to deal with the case of assets held in trust.
Is this paragraph specially inserted to deal with this case and are we to have these snoopers going into a house where assets are held in trust every 10 years so that they can bring the valuation up to date and levy a Capital Gains Tax.
If a person sells a statue, it comes to the saleroom and the provision in paragraph 6 can be used to determine whether Capital Gains Tax is payable or not. The only reason for having this objectionable provision in the Schedule is so that one can have a valuation of assets held in trust.
I should like to draw the Committee's attention to paragraph 3 relating to married women. Paragraph 3 says:
… the amount of capital gains tax on chargeable gains accruing to a married woman in a year of assessment … shall be assessed and charged to her husband.
It goes on to say that this shall not affect the amount of Capital Gains Tax charged on a man over and above what otherwise would remain chargeable to a married woman.
I should like to ask the Chancellor about that. If a man paying Surtax is married to a woman with little or no income and she makes a capital gain, would this mean that the husband would be able to take advantage of this, and would the capital gain be charged at two-thirds the marginal rate of tax—that is in all probability 27½ per cent.? Does this paragraph mean that the husband will be charged only at 27½ per cent. Capital Gains Tax no matter what his income is? That is how I read the provision. It is complicated and I should be grateful for an explanation.

5.0 a.m.

Mr. MacDermot: I will, first, answer the last question posed by the hon. Member for Orpington (Mr. Lubbock). His reading of the provision is correct. The fact that the gains should be assessed and charged on the husband does not affect the amount of the charge in respect of his spouse's gains. It would remain exactly the same as if it were charged on the wife.
I turn to the wider questions that have been asked. It is clear that the imaginations of a number of hon. Gentlemen opposite boggle at the prospect of the result of some of these provisions. [HON. MEMBERS: "Hear, hear."] Those cries of "Hear, hear" are not surprising, since hon. Members have allowed their imaginations to run away with them. Even at 5 o'clock in the morning it is a splendid sight to see so many hon. Gentlemen opposite coming here to put up such a spirited defence on behalf of the tax dodgers, in the name of the defence of liberty. [HON. MEMBERS: "Cheap."] Even their cries of "Cheap" do not sound very forceful.
Something which appears to worry hon. Gentlemen opposite is the question of whether the provision gives the Revenue the power to require from auctioneers and other dealers who handle transactions in chattels the returns of transactions which they have effected and which are subject to charge. This is an essential provision if this tax is to be made effective.
I will make clear the scope of the power and the circumstances in which it would be used. It applies only to returns of chattels disposed of at a price of over £1,000. I do not know how many such disposals hon. Gentlemen opposite consider take place. We were given a figure for Sotheby's and Christie's of 2,000 a year. I am sure that hon. Gentlemen opposite will agree that a high percentage of chattels of over £1,000 which are disposed of by sale are disposed of through Sotheby's and Christie's. In any event, it is not the intention to call for returns of every transaction. Thus, there is no question of Sotheby's and Christie's being asked to make returns on 2,000 transactions a year.

Sir Rolf Dudley Williams: rose—

Mr. MacDermot: I hope that the hon. Gentleman will allow me to answer a few questions before being interrupted. I will give way soon, then I will answer more questions.
The power will be used on a sample basis only and as a check that returns which have been made by taxpayers are accurate. As to the need for the powers contained in the provision, the Department must have powers which will enable it to administer the provision of the tax with efficiency and fairness. To deny these powers to the Department in respect of chattels would be an invitation to people to seek to avoid the tax on chattels.
We have listened to a number of speeches about how much avoidance there will be of the tax on chattels. I dealt with this matter during the early hours in a sitting of the Committee last week. I am surprised now to find hon. Gentlemen opposite wanting to remove from the Bill one of the few powers which will enable a check to be made to detect evasion. There is no reason why in this respect transactions with chattels should be dealt with on any different basis than that for stocks and shares.
This leads me to the question I was asked about stocks and shares. The intention is only to use this power on a sample basis. There is no question of asking stockbrokers and dealers to return every transaction or anything like it. An assurance had already been given in this respect by my right hon. Friend the Chancellor of the Exchequer to the Chairman of the Stock Exchange Council.
We have heard some most extravagant language on the subject of inspection. It was suggested by the hon. Member for Windsor (Sir C. Mott-Radclyffe) that this provision was of a kind never been made before. It was suggested that the liberterian traditions of our law would be undermined by such inquisitorial powers being given to the Executive. I would remind the Committee that this is no new problem. The question of valuing chattels has been with us for a long time, for Estate Duty purposes. This is perfectly reasonably administered. We do not hear of the terrible oppression of the people, oppressed by snoopers. Hon. Gentlemen opposite think that there has been no such power before. They are


quite mistaken. This provision to which they are taking such exception, and about which they are quoting 18th century precedents in powerful language by the judiciary, is based up and follows very closely a provision in Section 7 of the Finance Act, 1894. So, since 1894 we have been living under this oppressive regime and I do not recall having heard any of those impassioned speeches—[HON. MEMBERS: "Can we have the words?"]—Certainly. The Section says:
Subject to the provisions of this Act, the value of any property for the purposes of Estate Duty shall be ascertained by the Commissioners in such manner and by such means as they think fit, and, if they authorise a person to inspect any property and report to them the value thereof for the purposes of this Act, the person having the custody or possession of that property shall permit the person so authorised to inspect it at such reasonable times as the Commissioners consider necessary.
This is the old despotism under which we have lived for 70 years—the oppressed citizens.

Mr. John Farr: The hon. Gentleman quoted the case of Estate Duty. There is a world of difference in that case. The Act which he quoted quite clearly says that the Inland Revenue may appoint somebody suitable to make examination. That is generally done by a local firm of auctioneers or valuers. There is a world of difference between that and what is proposed in this Bill. which is a Government snooper or a paid public official.

Mr. MacDermot: I think it is most reprehensible for hon. Members opposite to talk in those terms. [Interruption.] We have been living for the last 13 years under a regime with Government snoopers under the Government of hon. Gentlemen opposite. They did not use those terms when they were in office. [Interruption.] One of the great advantages this country has over many other countries—

The Chairman: Order. I must ask the hon. Gentleman the Member for Shipley (Mr. Hirst) to contain himself.

Mr. MacDermot: I should have thought that hon. Members opposite would have realised the advantages we have in this country of a Civil Service and, in this connection, Revenue officials

who, I think by common accord, are uncorruptible and fair-minded in their administration of our tax laws. If hon. Members think that they will get any political advantage by abusing them and calling them snoopers, it is not an attitude that will find much favour outside this House.
The question of the valuation of assets is one that has arisen for a long time in connection with Estate Duty. I am asked how it will work out in practice. The answer is that the practice will operate much as it has done for a long time for Estate Duty purposes. Usually, when one is dealing with valuable chattels, their owner submits a report with a valuation from someone who is well recognised as a well-qualified expert in that field.
Usually, on the basis of that report, there is not much difficulty in reaching agreement about the valuation for Estate Duty purposes. It is extremely rare for there to be any dispute at all. The fact remains that in order that there shall be proper and fair administration of the law, it is necessary, as was found with the 1894 Act, to keep a reserve power of this kind to enable an inspection to take place, and this can operate for the benefit of the taxpayer. Let me explain why.
The paragraph is directed to the situation in which, for example, one individual has given an asset to another. The calculation of the gain accruing to the donor and, therefore, of the tax to which he is liable, will turn on the market value of the gift either at the date of the gift or on Budget day. In such a situation, the asset in question is outside the control of the person whose tax liability is affected at the time when the question of valuation arises. It follows, therefore, if only in the interests of the person whose tax liability is at stake, that there must be powers for the Revenue to inspect the asset for the purpose of valuation.
The valuation that is arrived at, incidentally, may well at a future date affect the rights of the person who then has the custody of the chattel, and is its owner. There is provision in the Schedules whereby the Revenue can serve a notice on him and he then becomes a party to the determination of


the valuation which will affect him in the future.
As I say, this kind of difficulty that hon. Members are imagining is something that in practice arises only extremely rarely. It is dealt with administratively as a commonsense matter. It is dealt with with courtesy and consideration, and it is obvious that one must have reserve powers of this kind to deal with recalcitrant people—[HON. MEMBERS: "Oh."] Certainly, we must have such reserve powers to deal with recalcitrant people, people who are adopting an utterly obstructive attitude which will otherwise prevent a reasonable inspection from taking place to ascertain the value of the chattel—a matter which will affect not merely their rights, but the rights of other taxpayers as well—

Mr. Lubbock: Will the hon. and learned Gentleman explain what the reason is for the difference between this Schedule and the Section be read from the Act of 1894? In this Schedule we have the inspector or the officer of the Board carrying out the inspection, while under the Section the Financial Secretary read out the Board has power to appoint a qualified person to carry out the valuation.

Mr. MacDermot: In the Section that I read, the powers are at large; it does not have to be an inspector or other officer. The Board authorises "a person". The power in the 1894 Act is very much wider as to the number of people who can be authorised to carry out the inspection. We have restricted it in a way not done in that earlier Act, so I do not know what the hon. Member is complaining of.
In practice, if an inspection of this kind took place, it would, in the normal course, be the inspector himself who would carry out the inspection, but it may be done by some other member of his staff, or by a Revenue expert.
As I have said, the number of cases, judging by the Estate Duty experience, where the powers would have to be used are extremely rare, and in practice these valuation problems are matters which are determined usually with the assistance of expert valuation where that is required and by a reasonable amount of

give and take between the Revenue and the parties involved.

5.15 a.m.

Sir Rolf Dudley Williams: When one listens to the sort of speech to which we have just had to listen one is not surprised that the Bill is so difficult to understand. The hon. and learned Gentleman tried to ride our criticism off by saying that there were only about 2,000 cases a year of £1,000 or more where chattels were concerned. Does he not know what the First Secretary is doing? The First Secretary has so lost control of the wages front—

The Chairman: Order. I see no mention of the First Secretary in the Schedule. The hon. Gentleman must restrict himself to the Schedule.

Sir Rolf Dudley Williams: With great respect, Dr. King, the point that I am about to make about the valuation of chattels is entirely relevant. The First Secretary and the Chancellor have so lost control of the wages front that there will not be 2,000 cases a year; before long there will be millions, because the £ will be worthless and every one of the chattels will then have to be valued.
I turn to paragraph 13, which deals with the question of valuation. I have never known a Financial Secretary so mislead the House of Commons when quoting an earlier Act. If the hon. and learned Gentleman will look at this paragraph—if he can understand it; I do not know from what language it is translated—he will see that it says that the Board can authorize:
an inspector or other officer of the Board".
I should like to get the contract for putting up the school which will train the valuers. There are no valuers available to join the Board of Inland Revenue today. It is very difficult to get an effective valuer. Anyone who has had the ordeal of discussing this Finance Bill knows how difficult it has been to get anything valued over the last few months. If the hon. and learned Gentleman puts up the buildings necessary to train valuers he may begin to get some valuers in the Inland Revenue. It is no good his saying that he can obtain them easily. They are not available.
If the hon. and learned Gentleman looks at paragraph 13(1) he will see that the Board can authorise only:
an inspector or other officer of the Board to inspect any property for the purpose of ascertaining its market value".
So he cannot use Sotheby's or any of the other well-known valuers to value a picture or a piece of architecture. He has to use an officer of the Board. Therefore, he must recruit hundreds of valuers to join the Inland Revenue to carry out the burdensome task that he is unnecessarily placing upon it. Whether there will be any advantage to the country in increased revenue as a result of all this activity is very problematical. One of the first things that will happen will be that people will start exporting works of art over the next few months to avoid this taxation.
Paragraph 13(2)—I hope that the hon. and learned Gentleman will do me the courtesy of listening—

Mr. Lubbock: Before the hon. Gentleman leaves sub-paragraph (1), would he not agree that before Report the Financial Secretary should delete the words:
an inspector or other officer of the Board"—

The Chairman: Order. We cannot discuss Amendments to the Schedule now.

Sir Rolf Dudley Williams: Now I come to the second paragraph—and I hope that I shall have the attention of the Financial Secretary. Indeed, I thought that we might have had the First Secretary here to explain how all this will be related to his wages policy. The second paragraph of subsection 13 states that
If any person wilfully delays or obstructs an inspector or other officer of the Board …
he shall be guilty of an offence. While he may not, under this subsection obstruct or delay an inspector, he can do what he likes to an outside valuer. Is that what the Treasury wants? Is that the Government's indication that it will have to recruit a vast number of people in order to carry out this duty? Such legislation is frightening. In the West Country last night there was a discussion on whether the Chancellor was trying to get rid of his office. It may well be that he is, but we want him to have a few

seats left after the next election. If he continues in this way he will have none.

Sir J. Foster: One has to draw the line between trying to prevent tax avoidance and maintaining the liberty of the subject. I have some sympathy with the Financial Secretary when he tries to point out how the line is drawn, but the rule of law is infringed here to the extent that there is the right in this Schedule to make people answer questions and to inspect property without a warrant. In the unimportant crime, such as exceeding the speed limit, where the police cannot insist on statements, the subject is protected; but there is always this difficulty when one is dealing with property, and the State has to be very careful to protect the liberty of the subject while taking sufficient power to prevent tax avoidance.
The State has taken power in the Control of Exchange Act to ask people where they obtained foreign currency and, if they do not answer, to put them in prison. Under this Schedule, the Government have gone over the line and infringed the liberty of the subject beyond what they are entitled to do.
Paragraph 10 of this Schedule states that if a person has shares in a company which is not resident in the United Kingdom, or if he is one of a number of beneficiaries under a foreign trust, he can be asked questions which the Inland Revenue requires him to answer. If he does not answer them he is subject to the penalties set out in the Finance Act, 1960. That is a very serious power. Does the Committee realise that if there is a trust abroad with foreign trustees, and all the property is abroad, there can be a number of discretionary beneficiaries who can include, without their knowing it, every hon. Member of this Committee? If a person wanted to be capricious or eccentric, is it realised that every member of the Front Bench opposite could be put down as a beneficiary? The person concerned might never get any money from the trust. Or there might be many other beneficiaries who would get it first. He is only a long stop, in the Chancery phrase. But he may be asked all these questions about what the trust does.
When he is prosecuted for not answering, presumably he will get off on the ground that he does not know—but he


will have been prosecuted. This is a great infringement of the liberty of the subject. He may be a shareholder in a foreign company about which he knows nothing. He may be asked questions about whether it is a close company and about the relationship of the other shareholders to each other. He could be punished if he failed to reply.
It is not clear whether there is a duty on him to find things out. The trouble with arguing such matters at this hour is that hon. Members opposite think that anyone who rises to speak is trying to delay proceedings. If it had been taken at an earlier hour hon. Members would have realised that there was a serious issue underlying the Financial Secretary's speech. In English law, one cannot be forced to answer questions if one does not want to answer them. There is to right in ordinary law to seize a witness and to say to him, "You must answer these questions." There is no law that says that one must help the police by telling them what one knows.
This is the position with serious crime. Where a murder is committed the police are hampered because they cannot say, "You must answer these questions". But the Government take such power where property is concerned. It has been recognised that it is more important to find out about property than about murder. That may be an unfair way of putting it, but that is the effect of it. When dealing with property we must have some power to make people answer; when a bankrupt will not answer he can be compelled to do so and punished for refusing to do so. But we must be careful what we do.
It is not always sufficient for a Minister to say, "This power will be exercised in a reasonable manner. It will only rarely be exercised." In such cases we must safeguard the subject by having an independent person before whom the questions are asked. It is not safe to extend these property inspections in this manner.
I have given the example of beneficiaries in a foreign trust who do not know that they are beneficiaries. They can be questioned and subjected to prosecution and made to answer. If they say, "I could not answer this because I did not know", presumably that is a

defence, although it is not clear from the Bill. Presumably there would be no mens rea. But there is the other argument that the provision is mandatory, like the provision concerning serving drink to a minor in a public house; to say that one did not know that the person was a minor would be no defence. Shareholders in foreign companies or beneficiaries in foreign trusts may automatically be convicted.
The Government ought to reassure the Committee on that point if on nothing else. They ought to say that where a person does not answer because he has no knowledge on the subject, he will be acquitted at the trial. I am not asking the Commissioners to accept his word that he does not know. But the Government should satisfy the Committee that if at the trial he proves that he could not have known that he was a beneficiary in the trust, he will be acquitted. He may have been put in as a beneficiary to cause a pleasant surprise when the settlor dies—or because he is estranged from his wife but later may be reconciled to her.
There are hundreds of reasons for making somebody a discretionary trustee who knows nothing about it. A person may wish to hide his relationship with another, putting a former girl friend into a discretionary trust, perhaps, and not wanting it to be known until he dies. There can be a hundred reasons, but the unfortunate person can be asked about it by the Commissioners. They have got a copy of the documents from a spy in the Bahamas, they think it is a close company, and they want to know about his holding, about the relationships of the directors, and so on. This is a very wide power which should not be granted.

5.30 a.m.

Mr. Heath: My hon. Friends have called attention to many of the dangers which will result from the powers which the Chancellor is proposing to take. It is, to say the least, lamentable that all we have heard from the other side of the Committee has been a barrage of jeers. In the interests of the party opposite, which must realise that it is particularly susceptible to the charge of encouraging this sort of activity through powers of this kind, hon. Members opposite ought to realise that this is, in fact, a matter of the utmost importance.
As my hon. and learned Friend the Member for Northwich (Sir J. Foster) said, the problem in all these cases is to strike a balance. The obligation and responsibility on any Administration is to demonstrate quite clearly to Parliament that the powers they seek are absolutely necessary and are no more than are absolutely necessary, and that the liberty and rights of the individual are safeguarded to the utmost extent. The Financial Secretary, who treated the matter rather lightheartedly, has not proved that case to the satisfaction of the Committee.
The hon. Member for Orpington (Mr. Lubbock) thought that, on the whole, paragraph 6, dealing with the Stock Exchange and auctioneers, was reasonable, but he failed to realise that what matters in the giving of special returns is the breaking of the confidential relationship between client and profession or between customer and auctioneer, a relationship which we in this country pride ourselves on maintaining. I can recall only one other instance since I have been in the House when this matter was debated, when we had long and intense arguments about the relationship of banks to their customers on the question of declaring interest on small deposits. Great safeguards were embodied when it was decided that the information was required.
This Schedule will break confidential relationships. It is not so much a matter of form filling. It is a question of the confidential relationship between client and profession and between customers and those with whom they are dealing. This is the fundamental objection. In some cases, of course, foreign customers will be affected. Although they may feel that they are not in any way affected by our own Government, they will immediately feel—this was the point in the earlier case of the banks—that, once information is made available to the British Government, it will then be passed on to other Governments. The Government owe the Committee a firm assurance that, at least on the foreign side, which affects auctioneers and others very greatly, no information obtained will be passed on to any foreign Government in any circumstances whatever. An undertaking must be given.
On the other powers under paragraph 13, the Financial Secretary seemed to say that the powers he is now asking for are both narrower and wider than the powers under the 1894 Act which he quoted. They are narrower because the powers there for Estate Duty allow qualified persons outside the Board of Inland Revenue to be used for these purposes.
What is worrying my hon. Friends is that there may not be the people in the Inland Revenue sufficiently qualified to deal with these new problems. There may not be sufficient of them, and it may be very difficult to enrol enough people so qualified into the Inland Revenue. So the powers being taken are narrower.
But in the other sense the powers being taken are much wider, because for Estate Duty, as I understand it, the powers are taken for this specific purpose, for dealing specifically with the estate of the deceased. That is what the powers are required for, and they work fairly amicably under the present arrangements. But these powers are very much wider than those, because for the purposes of this Part of the Bill concerned with capital gains almost any direction can be given, not only to the specified person concerned, but regarding anything he may have had, or got rid of, or may have obtained, and affecting any other person or persons. This is why the powers are so much wider. In the case of Estate Duty we know the powers are for only one specific purpose, but these powers are very much wider than the powers under the Act of 1894, and I do not think they are sufficiently defined.
I really think that before the Committee can accept this Schedule these powers must be much more clearly defined, and much greater safeguards must be introduced for the individual. I hope that the Financial Secretary will be able to tell us that he is prepared to do this with this Schedule. If he cannot do it I really think we must express our anxieties very forcefully in the only clear way open to us. This is a matter of great importance to us. We do not feel that the balance has been correctly judged. This is one thing the House of Commons has always given the greatest possible attention to—the rights and liberties of the individual. This is a very important aspect of that matter.

Mr. Ernest Armstrong: I am very grateful to the right hon. Member for giving way, but I feel very strongly about this. Thousands of homes in my constituency have been visited by Government snoopers and officers, but the only time they ever visited them was in the dark days of the 'thirties, when Government snoopers visited them continually to value every bit of furniture they had, when they wanted a pittance. That is why I feel bitter about this protest by hon. Members opposite.

Mr. Heath: I am quite prepared to accept from the hon. Gentleman that he has very strong feelings on this matter, as he obviously has, and I am quite prepared to believe they are shared by many of his colleagues. I do not deny that for a moment, but, with the greatest respect, I would say that was not a comparable situation with the one we are discussing now. These powers are not comparable with the Regulations passed by the House at that time.
I conclude by emphasising again, as my hon. and learned Friend the Member for Northwich did just now, the importance of this matter. We believe that the balance has been wrongly judged, so that, unless the Financial Secretary can show us that he seriously intends to redress it, we must divide the Committee.

Mr. MacDermot: I am sure the Committee wishes to reach a conclusion, but I will answer some of the technical points I have been asked. First, as to foreign Governments, there is provision in the double taxation agreements by which we are under an obligation to provide information to foreign Governments, and that operates reciprocally. It is the same for them and for us. Under those agreements there would be no question of not passing this information to any Government.

Mr. Heath: Presumably this means, as we were told earlier today, I think by the Solicitor-General, that under the provisions of the double taxation agreements, now that we in this country are to have a Capital Gains Tax, in future information will be passed?

Mr. MacDermot: Yes, obviously, because this now extends to capital gains

which were not subject to tax here: it operates both ways.
I think that there is a misunderstanding about the powers of inspection. Hon. Members have been talking about power to search without warrant. It is nothing of the sort. No power to search is contained here. If hon. Gentlemen read the provision and the Section of the 1894 Act, they will see that all the power given to the Commissioners is to authorise a person to inspect something which is in the custody of another person. If the other person obstructs the inspector and refuses to let him enter, he has no power to break down the door and batter his way in. He can prosecute, and in that case the person is liable. on summary conviction, to a fine of £5, and if hon. Gentlemen opposite think that that is very oppressive to our liberties, based as it is on something which we have been practising for 70 years, their imaginations are running away with them.

Mr. Kenneth Lewis: The hon. and learned Gentleman has said on more than one occasion that there is a similarity between the 1894 Act and this Bill. The words are
having the custody or the possession of that property",
and in the context of the 1894 Act they meant that the dead man's property was in the possession of his solicitor, or his family, or someone else. This is what happens when someone culls something from an old Act and brings it into a modern one.

The Chairman: Order. The intervention is getting lengthy.

Mr. Lewis: I am sorry, Dr. King, but the hon. and learned Gentleman gave way and I stood up to speak. The hon. and learned Gentleman should tell us whether this means that an inspector can go into a house when the occupant is abroad.

Mr. MacDermot: He has no power of search, and, as regards the other point, the Estate Duty provisions apply quite widely. There might be a gift which was made three or four years before death, and which is in the hands of some third party. There is still the same power.

Question put, That this Schedule, as amended, be the Ninth Schedule to the Bill:—

The Committee divided: Ayes 177, Noes 157.

Division No. 159.]
AYES
[5.42 a.m.


Albu, Austen
Gourlay, Harry
Newens, Stan


Alldritt, Walter
Greenwood, Rt. Hn. Anthony
Noel-Baker, Francis (Swindon)


Allen, Scholefield (Crewe)
Gregory, Arnold
Norwood, Christopher


Armstrong, Ernest
Grey, Charles
Oakes, Gordon


Atkinson, Norman
Griffiths, Will (M'chester, Exchange)
O'Malley, Brian


Bagier, Gordon A. T.
Hamilton, James (Bothwell)
Oram, Albert E. (E. Ham, S.)


Baxter, William
Harrison, Walter (Wakefield)
Orme, Stanley


Beaney, Alan
Hazeil, Bert
Page, Derek (King's Lynn)


Bence, Cyril
Herbison, Rt. Hn. Margaret
Paget, R. T.


Benn, Rt. Hn. Anthony Wedgwood
Hobden, Dennis (Brighton, K'town)
Palmer, Arthur


Bennett, J. (Glasgow, Bridgeton)
Horner, John
Pargiter, G. A.


Binns, John
Houghton, Rt. Hn. Douglas
Park, Trevor (Derbyshire, S.E.)


Bishop, E. S.
Howarth, Robert L. (Bolton, E.)
Parker, John


Blackburn, F.
Howie, W.
Parkin, B. T.


Blenkinsop, Arthur
Hughes, Emrys (S. Ayrshire)
Pearson, Arthur (Pontypridd)


Boardman, H.
Hunter, Adam (Dunfermline)
Peart, Rt. Hn. Fred


Boyden, James
Hynd, H. (Accrington)
Perry, Ernest G.


Braddock, Mrs. E. M.
Irving, Sydney (Dartford)
Popplewell, Ernest


Bradley, Tom
Jackson, Colin
Prentice, R. E.


Brown, Rt. Hn. George (Belper)
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Probert, Arthur


Brown, Hugh D. (Glasgow, Provan)
Jenkins, Hugh (Putney)
Pursey, Cmdr. Harry


Buchanan, Richard
Jenkins, Rt. Hn. Roy (Stechford)
Rees, Merlyn


Butler, Herbert (Hackney, C.)
Johnson, Carol (Lewisham, S.)
Rhodes, Geoffrey


Butler, Mrs. Joyce (Wood Green)
Johnson, James(K'ston-on-Hull,W.)
Robertson, John (Paisley)


Callaghan, Rt. Hn. James
Johnston, Russell (Inverness)
Robinson, Rt.Hn.K.(St. Pancras,N.)


Carmichael, Neil
Jones, J. Idwal (Wrexham)
Rodgers, William (Stockton)


Carter-Jones, Lewis
Jones, T. W. (Merioneth)
Ross, Rt. Hn. William


Coleman, Donald
Kenyon, Clifford
Sheldon, Robert


Conlan, Bernard
Kerr, Dr. David (W'worth, Central)
Shore, Peter (Stepney)


Cousins, Rt. Hn. Frank
Ledger, Ron
Short, Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Craddock, George (Bradford, S.)
Lever, Harold (Cheetham)
Silkin, John (Deptford)


Cullen, Mrs. Alice
Lewis, Ron (Carlisle)
Skeffington, Arthur


Dalyell, Tam
Lomas, Kenneth
Small, William


Davies, G. Elfed (Rhondda, E.)
Loughlin, Charles
Solomons Henry


Davies, Ifor (Gower)
Lubbock, Eric
Stewart, Rt. Hn. Michael


Davies, S. O. (Merthyr)
Mabon, Dr. J. Dickson
Summerskill, Hn. Dr. Shirley


Dempsey, James
McCann, J.
Swain, Thomas


Dodds, Norman
MacColl, James
Thomas, Iorwerth (Rhondda, W.)


Doig, Peter
MacDermot, Niall
Thomson, George (Dundee, E.)


Donnelly, Desmond
McGuire, Michael
Tomney, Frank


Driberg, Tom
McInnes, James
Urwin, T. W.


Duffy, Dr. A. E. P.
McKay, Mrs. Margaret
Walden, Brian (All Saints)


Dunn, James A.
Mackenzie, Gregor (Rutherglen)
Wallace, George


Dunnett, Jack
Mackie, George Y. (C'ness &amp; S'land)
Watkins, Tudor


English, Michael
Mackie, John (Enfield, E.)
Wells, William (Walsall, N.)


Ennals, David
MacMillan, Malcolm
Whitlock, William


Evans, Albert (Islington, S.W.)
MacPerson, Malcolm
Wilkins, W. A.


Fernyhough, E.
Mahon, Peter (Preston, S.)
Willey, Rt. Hn. Frederick


Fitch, Alan (Wigan)
Marhon, Simon (Bootle)
Williams, Alan (Swansea, W.)


Fletcher, Sir Eric (Islington, E.)
Manuel, Archie
Williams, Mrs. Shirley (Hitchin)


Fletcher, Raymond (Ilkeston)
Mapp, Charles
Williams, W. T. (Warrington)


Floud, Bernard
Mason, Roy
Willis, George (Edinburgh, E.)


Foot, Sir Dingle (Ipswich)
Millan, Bruce
Wilson, William (Coventry, S.)


Foot, Michael (Ebbw Vale)
Miller, Dr. M. S.
Winterbottom, R. E.


Ford, Ben
Milne, Edward (Blyth)
Woof, Robert


Fraser, Rt. Hn. Tom (Hamilton)
Morris, Alfred (Wythenshawe)
Wyatt, Woodrow


Freeson, Reginald
Morris, Charles (Openshaw)
Zilllacus, K.


Garrett, W. E.
Mulley,Rt.Hn.Frederick(SheffieldPk)



Garrow, A.
Murray, Albert
TELLERS FOR THE AYES:


Ginsburg, David
Neal, Harold
Mr. Harper and Mrs. Slater.




NOES


Agnew, Commander Sir Peter
Bossom, Hn. Clive
Cooke, Robert


Alison, Michael (Barkston Ash)
Box, Donald
Cooper-Key, Sir Neill


Allan, Robert (Paddington, S.)
Boyle, Rt. Hn. Sir Edward
Corfield, F. V.


Allason, James (Hemel Hempstead)
Braine, Bernard
Crosthwaite-Eyre, Col. Sir Oliver


Amery, Rt. Hn. Ju[...]an
Brinton, Sir Tatton
Curran, Charles


Anstruther-Gray, Rt. Hn. Sir W.
Brown, Sir Edward (Bath)
Dalkeith, Earl of


Atkins, Humphrey
Bruce-Gardyne, J.
Davies, Dr. Wyndham (Perry Barr)


Baker, W. H. K.
Bryan, Paul
d'Avigdor-Goldsmid, Sir Henry


Batsford, Brian
Buxton, Ronald
Dean, Paul


Beamish, Col. Sir Tufton
Campbell, Gordon
Deedes, Rt. Hn. W. F.


Berry, Hn. Anthony
Carlisle, Mark
Digby, Simon Wingfield


Biffen, John
Carr, Rt. Hn. Robert
Elliot, Capt. Walter (Carshalton)


Biggs-Davison, John
Clark, William (Nottingham, S.)
Elliott, R. W.(N'c'tle-upon-Tyne,N.)


Blaker, Peter
Cole, Norman
Eyre, Reginald




Farr, John
Kilfedder, James A.
Powell, Rt. Hn. J. Enoch


Fell, Anthony
Kimball, Marcus
Price, David (Eastleigh)


Fletcher-Cooke, Charles (Darwen)
King, Evelyn (Dorset, S.)
Quennell, Miss J. M.


Fletcher-Cooke, Sir John (S'pton)
Kirk, Peter
Ramsden, Rt. Hn. James


Foster, Sir John
Lambton, Viscount
Rawlinson, Rt. Hn. Sir Peter


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Lancaster, Col. C. G.
Redmayne, Rt. Hn. Sir Martin


Fraser, Ian (Plymouth, Sutton)
Langford-Holt, Sir John
Ridsdale, Julian


Gammans, Lady
Legge-Bourke, Sir Harry
Roots, William


Gibson-Watt, David
Lewis, Kenneth (Rutland)
Scott-Hopkins, James


Gilmour, Ian (Norfolk, Central)
Litchfield, Capt. John
Sharples, Richard


Gilmour, Sir John (East Fife)
Longbottom, Charles
Sinclair, Sir George


Goodhart, Philip
Longden, Gilbert
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Goodhew, Victor
Loveys, Walter H.
Spearman, Sir Alexander


Gower, Raymond
Lucas, Sir Jocelyn
Stainton, Keith


Grant, Anthony
MacArthur, Ian
Stodart, Anthony


Grieve, Percy
Maclean, Sir Fitzroy
Studho[...]me, Sir Henry


Griffiths, Peter (Smethwick)
Maginnis, John E.
Taylor, Edward M.(G'gow,Cathcart)


Gurden, Harold
Maude, Angus
Teeling, Sir William


Hall, John (Wycombe)
Mawby, Ray
Temple, John M.


Hall-Davis, A. G. F.
Maxwell-Hyslop, R. J.
Thomas, Sir Leslie (Canterbury)


Harrison, Brian (Maldon)
Meyer, Sir Anthony
Thomas, Rt. Hn. Peter (Conway)


Harvey, Sir Arthur Vere (Macclesf'd)
Mills, stratton (Belfast, N.)
Thompson, Sir Richard (Croydon,S.)


Harvey, John (Walthamstow, E.)
Miscampbell, Norman
Tilney, John (Wavertree)


Hastings, Stephen
Mitchell, David
Turton, Rt. Hon. R. H.


Hawkins, Paul
Monro, Hector
Tweedsmuir, Lady


Heald, Rt. Hn. Sir Lionel
More, Jasper
van Straubenzee, W. R.


Heath, Rt. Hn. Edward
Morrison, Charles (Devizes)
Walker, Peter (Worcester)


Higgins, Terence L.
Mott-Radclyffe, Sir Charles
Ward, Dame Irene


Hill, J. E. B. (S. Norfolk)
Munro-Lucas-Tooth, Sir Hugh
Weatherill, Bernard


Hirst, Geoffrey
Murton, Oscar
Whitelaw, William


Hobson, Rt. Hn. Sir John
Noble, Rt. Hn. Michael
Williams, Sir Rolf Dudley (Exeter)


Hogg, Rt. Hn. Quintin
Nugent, Rt. Hn. Sir Richard
Wilson, Geoffrey (Truro)


Hordern, Peter
Osborn, John (Hallam)
Wise, A. R.


Hornby, Richard
Page, R. Graham (Crosby)
Wolrige-Gordon, Patrick


Hunt, John (Bromley)
Pearson, Sir Frank (Clitheroe)
Wood, Rt. Hn. Richard


Irvine, Bryant Godman (Rye)
Percival, Ian
Wylie, N. R.


Jenkin, Patrick (Woodford)
Peyton, John
Younger, Hn. G[...]orge


Johnson Smith, G.(East Grinstead)
Pickthorn, Rt. Hn. Sir Kenneth



Kaberry, Sir Donald
Pitt, Dame Edith
TELLERS FOR THE NOES:




Mr. McLaren and Mr. Pym.

The Chancellor of the Exchequer (Mr. James Callaghan): I think that this is an appropriate moment to move,
That the Chairman do report Progress and ask leave to sit again.
In view of the progress which we have made and in view of the majority which the Government have just sustained, showing the growing confidence of the country in the administration of the Government, I feel tempted to go on, but I should not like to take an unfair advantage of the Opposition.

Mr. Heath: The Chancellor is right. After eight days and three nights of debate in the Committee, we are now approaching the half-way point of the Bill, and this would be a suitable moment for the Committee to Report progress.
I would make one suggestion to the Chancellor which I hope he will bear in mind. The Bill has now received a considerable number of Amendments of a detailed and drafting kind; and, as it is a monumental Bill, it might be for the convenience of the Committee if he would

see whether it is possible to reprint the three parts and the nine Schedules which we have now completed, rather than to wait until we have completed the whole Bill and then perhaps have only a short period between the completion of Committee stage and Report in which to look at it in its amended form. I put this forward as a proposal which I hope that the Chancellor will find helpful, because I believe that it would be helpful to the Committee.

Mr. Callaghan: This is the first I have heard of this suggestion. I am anxious, as I have been throughout, to facilitate the work of every hon. Member of the Committee, on whichever side he sits. I shall consider this proposition. There may be printing difficulties for the Stationery Office. I will have a word with the right hon. Member for Bexley (Mr. Heath) and see whether anything can be done to assist.

Question put and agreed to.

Committee Report Progress; to sit again this day.

EASTERHOUSE, GLASGOW (DEVELOPMENT)

Motion made, and Question proposed, That this House do now Adjourn.—[Mrs. Harriet Slater.]

5.55 a.m.

Mr. Hugh D. Brown: I am sure that this is one of the latest Adjournment debates we have had for some time and, although the audience will disappear, I hope we may attract a few commuters who are waiting for the first trains.
Nevertheless, there are difficulties about trying to be indignant at 6 o'clock in the morning. I feel indignant about the fact that we conduct our affairs in such a way that we are still here at 6 o'clock. Knowing the reputation in Glasgow of my hon. Friend the Under-Secretary, knowing his sympathetic understanding of the needs of Glasgow since he became a member of the Government, and knowing his reputation for being vigorous in speeding up decisions which sometimes get held up in the Department, I look forward to hearing what he has to say about the use of land at Easterhouse.
I am raising two aspects—the general problem and the specific issues associated with it, or which arise from it. The general conception I have of Easterhouse is that it is a new town within a city. It is enough to say that it has about 10,000 houses and a population of about 35,000. If one includes a couple of adjoining schemes which rightly have been included in what is called Easterhouse township, the centre becomes a township of about 14,000 houses with a population of about 50,000.
With the exception of six large burghs in Scotland, it means that this is bigger than any of the 14 classified large burghs. It is slightly smaller than Falkirk and bigger than Inverness. Compared with other new towns it is bigger than East Kilbride and two or three times the size of Cumbernauld. I make this point because I want to compare the quality of living in the new town within a city with some other aspects of new towns. It suffers to some extent from the fact that redevelopment areas within cities have priority.
This is inevitable in the sense that redevelopment starts from the ground floor in such things as health centres and I recognise that it is much easier to start from the ground floor rather than impose redevelopment on an established community. But it is unfortunate that in Glasgow, where we have three new towns—Castlemilk, Drumchapel and Easter-house, in that chronological order—Easterhouse has always been third in the queue. I am not complaining but merely stating a fact. There are delays and difficulties and big new towns are lacking in almost every amenity which makes up what I call a properly developed and balanced community.
I should like to suggest that all the shortcomings and lack of facilities are due to 13 years of Tory Government. Certainly many are, in that public expenditure was held up and local authorities had financial difficulties which made it even more difficult for them to embark on fringe benefits for any community. Nevertheless, Easterhouse is certainly not as desirable a place to live in as it should be, and the quality of living standards leaves much to be desired.
Even though the township centre of Easterhouse, which should be the main commercial, shopping and market centre and focus of social life and entertainment, were started tomorrow, it is estimated that it would take three or four years to complete. When it is remembered that the first houses in the area were occupied—not started, but occupied—as long ago as 1956, when Earl Attlee opened the 100,000th corporation house in Glasgow, it will be appreciated that it will take anything from 12 to 13 years before this main focal point is in operation in a township bigger than some of the large burghs. This is a measure of the delay and frustration inevitably found in such a community. These unreasonable delays are frustrating to the people of the area.
Leaving the general, the second issue which I want to raise concerns the 100 acre site at Queenslie. This was originally the site for 14 smallholdings and was handed over, or sold, to the Corporation for an undisclosed fee, I would have thought as a bargain, by the then Department of Agriculture for Scotland. However, there are now only five holdings classified as being used for agriculture


and only five of the 10 houses now in existence are being used as dwelling houses.
This is a site of 100 acres of valuable land. Any land is valuable in the central belt, according to the Scottish Development Department's Report, which says that it is now realised that, both because of the bad psychological effect and because the land is needed, we can no longer afford to leave land derelict in the central belt and a great deal of work to improve this land is in progress. Yet here are 100 acres zoned for industry, although there seems to be some doubt about their suitability for such development because of National Coal Board workings, or their possibility. This is one matter which my hon. Friend could investigate.
There is another important point in connection with Comedie Farm. This is a piece of land zoned for housing as a result of representations by the Corporation and on which an option seems to have been obtained by a private developer anxious to take advantage of the Corporation's representations. I know that there are some difficulties, but my hon. Friend might find it worth while to investigate this matter.
Another specific point about the use of land is the extension to the Loch Wood scheme or the Bishop's Loch scheme. This is an extremely desirable area and I should like to think that we could get some high amenity housing in the area which is zoned for housing. It might even be worth considering private building, because an injection of this kind of high amenity building into an area of ordinary housing would be extremely desirable and it might be worth having discussions with the corporation on this matter. I understand that no work has been done on the preparation of a layout.
A minor matter which my hon. Friend might consider is the use of Bishop's Loch a most desirable and attractive piece of water. The only unfortunate thing is part of it shores the ground of Gartloch Mental Hospital and it was originally feared that there might be an intrusion into the privacy of the patients and therefore some difficulty. However, I think that that difficulty can be overcome.
Provan Hall, an outstanding piece of history in the area, is widely quoted as being the most perfect example remaining

in Scotland of a simple monkish house of pre-Reformation days. This again is something that with a little encouragement by the Department to the National Trust—perhaps a little financial assistance—could be made into something of great historic interest. It would provide great attraction to more people if it was done up and perhaps some better use made of the surrounding grounds.
On the educational side, I should like to draw the Under-Secretary's attention to the fact that there is no such thing as a nursery school in the whole of this area. There is no such thing as a community centre.
I suggest it will be 10 or 11 years before anything happens in Easterhouse, when we think in terms of the new town of Castle Market within Glasgow which is ahead of it. I think that their request for a community centre is still in the hands of the Department for approval.
The Report of the Scottish Development Corporation says that although the first houses in Livingstone were not completed until later in the year, plans were already well advanced for the development by the Development Corporation of a comprehensive community centre. I wish that we had some of the advantages of Livingstone and some of the big new towns within the city.
I turn to the need for a youth centre in Easterhouse. I think this is also with the Department at the moment, and I should like it to be generous and speedy in the decision it arrives at. The problems of delinquency are well known. After Easterhouse has been in existence for eight or nine years, it is not unreasonable that there should be some sign that something will come to interest some of the youth of the area.
Perhaps I have painted a dull and depressing picture of Easterhouse. It was not my intention. But when we have this whole area with absolutely nothing at night for the young people of the area, where the brightest thing at night was the fire station until recently when the public house came on the scene, one will gather that this is not a healthy atmosphere for young people to be brought up in. This gives me great concern.
I was a member of the corporation and perhaps should accept some responsibility for the mistakes, if mistakes they were,


that have been made in the planning, or lack of it, that has gone into these new towns. Perhaps naïvely, I have every confidence and understanding that the Government, being all powerful and the Secretary of State for Scotland being particularly powerful—and even with the disadvantage of being successful in getting an Adjournment debate at this time in the morning—some good will come out of it for the people of the Easter-house area.

6.10 a.m.

The Under-Secretary of State for Scotland (Dr. J. Dickson Mabon): I assure my hon. Friend the Member for Glasgow, Provan (Mr. Hugh D. Brown) that I, too, have had the experience of having to wait for many hours to speak in an Adjournment debate. My hon. Friend will, no doubt, rejoice in the fact that a number of our hon. Friends who represent not only the City of Glasgow but neighbouring and friendly boroughs are here to support him. I regret the absence of hon. Gentlemen on the benches opposite.
As a result of my hon. Friend's flattering description of my right hon. Friend the Secretary of State—as the omnicompetent in Scotland—he has given me quite a task to reply to the number of points which he raised. There are a number of matters which are the responsibility of Ministers who are not in the Scottish office. So if I touch on some of their responsibilities and my hon. Friend is not satisfied with the explanations I give, I am sure that he will, after reading the report of my speech in HANSARD, pursue them directly with the Ministers concerned.
I will begin by putting the debate in the context of the debate which we had recently, when my hon. Friend the Member for Glasgow, Kelvingrove (Dr. Miller) raised the subject of the scale of Glasgow's housing problem. At that time I referred to the probable need for a greater amount of de-congestion in Glasgow to give the city room to develop standards of social environment equal to the best in terms of size and types of houses, open space conveniently located, shopping and recreational facilities and the means to get to them easily. The Government think it likely that there is congestion not only in Glasgow but also

in a number of the surrounding areas. A detailed assessment of the present population and the long-term capacity of existing built-up areas in relation to desirable planning standards is being carried out. As I have previously stated, Glasgow is not only a city but a region, and it must be considered in that context.
The Government are anxious to keep in touch with the local planning authorities concerned to assess the extra land that will be needed if we are to decongest, if I may be forgiven for using such a word, the purposes for which it is required and so on. In their conversations with the city and the surrounding local authorities, the Government want to bear all these points in mind, and these needs will be borne in mind by the Scottish Economic Planning Council in preparing economic and physical plans for Scotland generally and central Scotland in particular.
The Corporation of Glasgow has many burdens, including the great financial burden of trying to redevelop the city. The corporation's plans are certainly bold and imaginative. The fact that really effective steps were not taken in the past is a reflection on former Governments of this country during the last 13 years. We feel sure that things will improve under the present Government and the local government finance Bill may be introduced in this Parliament. That Measure will be designed to help great cities like Glasgow to meet the burdens which they must carry.
I had discussions with the corporation on 23rd May about the target of the housebuilding programme for the next five years. The purpose of the discussions was reflected in what my hon. Friend said about Easterhouse. The corporation recognises that in this part of Scotland a good many of our difficulties can be traced to the existence of a social environment lacking many of the facilities and, indeed, lacking the general air of a truly modern, prosperous urban area. In the urban context, a great deal of emphasis is given to redevelopment, and the reduction in overall density which the corporation hopes to achieve is vital if redevelopment is to give the best modern social environment. Often, however, not enough attention is given to the form, balance, detail and timing of development on hitherto undeveloped


land. This is illustrated best of all by the situation in the Easterhouse area of Glasgow.
I will rehearse the present development plan position there. Proposals for Easterhouse were submitted to the Secretary of State in October, 1962, by way of amendment to the quinquennial review of the Glasgow development plan. Of a total area of just under 2,200 acres, 1,291 were earmarked to continue in agricultural use, 282 acres were zoned for public open space and 118 acres, mostly at Commonhead and Comedie Farms, for housing.
There were no public objections to these proposals, which were approved by the Secretary of State. The same development plan amendment included an area of 86·9 acres at Queenslie, nearby, which was re-zoned from small holdings to industrial use. An area of about 12 acres, situated to the south of Wester-house Road, is allocated in the quinquennial review for the township centre, which is to be built by a development company.
Sites have already been allocated in the quinquennial review of the development plan for community centres in Garthamloch and Wellhouse housing schemes and south of Lochend Road, all in the general area of Easterhouse.
Here I should say something about the mineral situation. The National Coal Board is proposing to extend its mining operations from Cardowan colliery in a southerly direction taking in the area around Robroyston Hospital, extending eastwards to Barlinnie Prison and to the south of Edinburgh Road. The National Coal Board did not object to the Corporation's proposals at the development plan stage, but reserved its right to raise points later in connection with individual sites. It has now notified Glasgow that it proposes to work under the site of the proposed township centre and this is the subject of negotiation between the board and the development company. They are also in touch with the corporation and the Board of Trade about the extra land zoned for industry at Queenslie. The corporation intend to build at modest densities at Easterhouse.
In the large housing areas at Comedie and Commonhead Farms no buildings

over three storeys are planned. I understand that about 1,600 houses are planned for six sites in the Easterhouse area. A few will be completed this year, but most from 1967 onwards. On design, my hon. Friend is concerned mainly with the houses to be built on the lands of Commonhead Farm, near Bishop's Loch and in an area of high amenity. I sympathise with his desire to ensure that the houses built here match their environ ment in design and layout and I have no reason to believe that Glasgow Corporation does not share his views. It is. however, a matter for the Corporation. It does not seem likely that this scheme will require detailed approval for subsidy by the Secretary of State, and by virtue of the General Development Order, the Corporation itself is freed of the necessity to obtain planning permission for its own housing work. I am confident that the planning committee will give the same careful scrutiny to a local authority scheme as it would to a private development in the same area.
Bishop Loch is not controlled by the board of management which administers Gartloch Hospital, but by the British Waterways Board. I am told that informal approaches have been made for access to the loch through the hospital grounds, but these suggestions have been discouraged. The board is anxious to discourage outsiders entering other than on hospital business. I am not sure whether the British Waterways Board may permit sailing on the loch if we could find some way of making sure that the interests of the board of management were not offended.
Provan Hall is open to the public and it may well be that more intensive public use could be made of the house and its grounds. This seems a matter for negotiation between the corporation and the National Trust to explore the possibility of doing this.
A youth centre and games hall at Easterhouse have been under discussion between the authority and the Government for some time. The authority was authorised in March, 1965, to accept tenders for the erection of the centre and the games hall at a cost of just over £54,000. The games hall is 110 ft. by 60 ft. and is in accordance with the most up-to-date thinking. I am told that


there is a little delay in the building work.
A new further education college is planned for Easterhouse and Glasgow education authority has earmarked a site of about 12 acres for it near Provan Hall. The authority has not yet drawn up any plans for the college. It is not expected that it will be able to start work before about 1968. It is too soon for me to say whether or not it can be fitted into the Department's investment programme for that year.
The Government are not aware of any present plans by the authority to build a community centre at Easterhouse. There are earlier sites earmarked, I agree, but there are no proposals before us. Until such time as the education authority makes these propositions, the Secretary of State cannot intervene.
Nursery schools are not strictly within my own purview but in that of my hon. Friend the Member for Lanark (Mrs. Hart), but I can say that the basic policy about the provision of nursery schools and classes is that at present essential developments in primary, secondary and post-school education absorb all the building resources and the teachers available. My right hon. Friend the Secretary of State regrets that he can see no early prospect of removing the restrictions on nursery school provision.
In practice, however, proposals for new nursery schools and classes may be considered if suitable accommodation is already available—for example, in an old school; the cost of adaptation is very small; staff can be obtained without affecting staffing standards in primary schools in the area or in neighbouring areas. In addition, the provision of individual nursery classes could be approved without insisting on the foregoing conditions where the effect would be to produce a substantial net gain in primary or secondary school staff by releasing from domestic duties married women who were already certificated teachers.
I understand that there are no nursery schools in the Easterhouse area at present, but there are three on the perimeter, and the conversion of part of an old primary school at Shettleston to provide a fourth has been approved. Since very

few teachers live in Easterhouse, provision of nursery schools there would be unlikely to have much effect in enabling married women to return to teaching. It is a formidable problem.
I know that my hon. Friend has corresponded with the Department about the possibility of a health centre, suggesting at one time that the newly-formed Glasgow Joint Medical Services Committee should be asked to consider the possibility of Glasgow Corporation providing a new clinic in the Easterhouse area of Glasgow, incorporating practice accommodation for local medical practitioners on the lines of a scheme by the county medical officer of health for the West Riding of Yorkshire.
This proposal was referred to the Committee, and the matter was discussed at a meeting on 18th May. It was agreed that while the urgent problems were in redevelopment areas of Glasgow, the needs of the Easterhouse area would be considered as part of the whole question of the provision of medical buildings to be made throughout the city. The medical officer of health was asked to draw up a list of new clinics planned in the various areas of Glasgow so that the Committee, and more especially the general medical practitioner representatives on it, could consider the possibility of general medical practitioners in the area having practice accommodation in them.
It does not seem likely, however, that a health centre at Easterhouse would rank high in the priority list. We cannot build at once all the clinics we would like to, and the redevelopment areas have stronger claims. The fact that a site may be available at Easterhouse is not in itself an argument.
In a sense, I have given my hon. Friend some disappointing replies but I hope that I have given him one or two rather hopeful answers as well. He will see that what we are up against is the question of money for the work. In the time I have been in my own responsibilities I can say on behalf of the Secretary of State that I am very impressed by the work done by the new towns but, at the same time, I think that to some extent we are not giving the proper priority to the older areas and, for that matter, the newer developing


areas in the larger cities. This is certainly true in Glasgow.
I would hope that when more financial resources become available, my right hon. Friend will not pursue past practice but will place the emphasis more fairly on the redevelopment of large cities and communities like Glasgow, and the

larger burghs, so that we shall strike a social balance between those people fortunate enough to be living in new towns and the others who want to stay in the more solid and well-established communities such as Glasgow.

Question put and agreed to.

Adjourned accordingly at twenty-five minutes past Six o'clock a.m.